Used Car Prices Are Dropping. How Far Will They Go?

Used vehicle prices have had a long upward run. Now used car prices are dropping. Let's look at what's happening.

The recent Manheim Used Vehicle Value Index report indicates that the average price of used cars may be undergoing a correction. Many have jumped on the Manheim data and proclaimed that the used car market is indeed dropping. The truth, however, is a bit more nuanced.

Manheim’s vehicle value index is based on wholesale used car prices. While some think that a wholesale price drop predicts retail used car prices dropping, that’s not necessarily the case.

The Manheim report did estimate retail used vehicle sales as being down 13% year over year, using “a same-store set of dealerships selected to represent the country,” but it’s important to recognize that an estimate is not actual data. Manheim concedes that the estimates were likely more extreme than actual sales, but concludes that “used sales momentum likely faded in October.”

Here’s what the Manheim data probably means for used car affordability in the near future:

1. Retail prices will follow wholesale prices and the retail used car market will see a price drop.
2. Due to uncertainty in the resale market, dealers are giving even less for trade-ins and are trying to protect themselves from further decline in retail value.

(Here at PrivateAuto, we’re big fans of cutting out middlemen. We connect used car buyers and sellers to one another, and give them the tools to get the deal done.)

In the realm of used vehicle sales, “exotic cars have seen the biggest correction,” says PrivateAuto CEO Brad Parker. “We had this crazy situation where inventory was low and people were bidding $10,000, even $20,000 over book value for exotic cars.”

It’s no surprise, then, that we’re seeing exotic car prices dropping most severely. Other types of vehicles, however, are not immune.

“Watching some of these auction sites,” Parker notes, referring to some of PrivateAuto’s competitors, “we’re now seeing some cars sitting there for days or weeks and nobody’s bidding. This wasn’t happening before.”

We think used car prices are dropping and will continue to decline over the coming months. Here’s why.

“The past two years have set the vehicle industry up for a price correction,” Brad Parker notes, citing a perfect storm of low inventory and record-low interest rates. This perfect storm inflated used vehicle prices dramatically as many consumers bought the peak.

Rising interest rates are cooling more than the real estate market. Given that about 70% of purchased cars are financed, Parker notes that current interest rates could double the monthly payment of a car compared to the same car purchased a year or two ago. “A lot of folks are opting to wait it out, rather than pay the high monthly payments they’d get with today’s interest rates,” he says.

Curious what your car payment might be? See our car loan calculator to find out!

Consumer confidence declined in October, indicating that many fear a recession (note: by most definitions, we are not currently in a recession as of November 2022). Recession fears could have folks opting to drive their cars for longer, leading to lower demand for used vehicles.

On the other hand, some buyers—especially the minority who pay cash—could choose to buy used cars instead of new, creating a bit of upward pressure on prices. Probably not enough to counterbalance the other factors we’re discussing, though.

Supply chain issues, especially for computer chips, keep new car inventory suppressed and new car prices inflated. This trend will continue well into 2023. This could exert an upward push on used car prices: if would-be buyers face a long wait to get the new car they want, they’re more likely to consider buying used.

We certainly don’t see the average used vehicle price increasing over the coming months. But neither do we expect it to crash.

Given high demand for vehicles, combined with low inventory of many new vehicles, we think a major drop in prices is unlikely. What is much more probable is a plateau or minor correction.

Barring unforeseen events—such as the pandemic of 2020 and 2021—we expect used car prices to trend lower well into 2023. While we’re not predicting an absolute crash, we think the correction is just getting underway and will take 4-8 months (or even more) to work itself out.

If you’d like to sell your used vehicle, you won’t find a better place to sell it than PrivateAuto. We provide an end-to-end solution to help you get the deal done, while keeping your personal info secure. Learn more about how PrivateAuto works.

“We feel PrivateAuto is entering the market at the perfect time,” says Brad Parker. “Our technology makes it safe and simple to sell your car privately and keep more money in your pocket. Exactly what consumers need right now."

PrivateAuto is the only platform that allows you to purchase a used car conveniently and securely with the following advantages:


Browse used vehicles for sale.