It’s no secret that used car prices have been on an absolute tear over the past two years. I previously wrote about how some used cars were selling for more than you could get the car for new! It’s often touted by personal finance gurus that you should always buy used due to the costs of depreciation. However, when the quality of new cars is improving dramatically, and when used car prices are high, this may not be the best advice.
Because I am considering a car purchase at some point in the next couple of years, I figured I’d check out some of the available data on used car prices and new car sales. To do this, I gathered used car value information from the Manheim Used Vehicle Value Index and sales information from WardsAuto, which is the same source that the Bureau of Labor Statistics relies on when it comes to vehicle sales.
As you can see in the graph I created with this data, the price of used cars clearly has a correlation with the 5-year rolling average of new vehicle sales. Theoretically, I figured that there were be a strong association because it makes sense based on how used cars come about. A lot of used cars hit the market 3 to 5 years after being originally purchased. Some people love the drive used cars constantly, while many others end up on the market after leases end or rental fleets are sold. When more new cars are being purchased, the future supply of used cars is increasing. We’d expect this to affect the average price of used cars 3 to 5 years in the future.
This is a trend that isn’t specific to any vehicle company, and it’s not something that can really be adjusted for. As I get closer to buying a car, I’ll be evaluated those influences that I can control. One such example is looking at the trends in fleet sales. Selling to fleets can often hurt a brand’s image and floods the market with lower-priced used cars for that model. For now, I just wanted to point out this interesting trend I’d noticed.