Americans have begun slowly easing their foot off the gas of a frenzied used car sales market. For the second straight month, used car sales slowed in July. Americans bought 18% fewer used cars in July of 2021 compared to July of 2020.
Total used vehicle sales fell to 3.1 million in July, from 3.2 million in June, according to Cox Automotive. Cox Automotive is the parent company of Kelley Blue Book.
A Host of Causes
Sales of both new and used cars have hit record highs in 2021 thanks to a variety of factors.
The COVID-19 pandemic had depressed sales of new and used cars during 2020. As Americans began to get vaccinated, they ventured out with cash in hand from government incentive programs designed to spur an economic recovery. But many were nervous about public transportation during a pandemic and sought cars instead.
A worldwide shortage of microchips left automakers unable to build enough new cars to meet demand. New car prices rose to record highs (the average new car in America sold for $42,736 last month). That pushed buyers who would ordinarily have shopped for a new car into the used car market.
Factors that affect the new car market hit the used car market years later. American automakers had built fewer cars for several years in the aftermath of the 2008 recession. That left dealers struggling to find low-cost, high-mileage used cars today.
Stir all of that together, and you get an average used car price of $25,500 in July and reports of particularly hard-to-find used cars selling for new car prices.
When Will Prices Fall?
Will slowing sales push those prices down?
Eventually. Wholesale used vehicle prices – the prices dealers pay for the used cars they later sell – declined 0.8% in the first 15 days of August, according to Cox Automotive. If retail sales continue their slowdown, that trend should result in lower sticker prices for used cars. But that dip can lag months behind a slowing sales pace.
High prices may be pushing some buyers out of the used car market, making demand look lower than it is. If prices begin to fall, those buyers may return to used car lots, making any decline in sales and prices a long, slow affair.
Is Now a Good Time to Buy, Sell or Trade a Used Car?