Trends in Used Car Values

What Autozen's Data Tells Us About the Price of Used Cars

Are you considering selling your current vehicle, and wondering how much its value has depreciated since you bought it? 

An examination of Autozen's transaction data unveils intriguing trends in used car values. The average depreciation year over year stands at 6.2%, indicating that a vehicle listed on the platform is currently worth 6.2% less than a year ago.

While current headlines often highlight the decline in used car prices, it's worth noting that the current rate remains lower compared to historical figures before the chip shortage, when the rule of thumb for annual depreciation was 20% in the first year and 15% in subsequent years.

Diving deeper into the data, we can see nuanced depreciation patterns. Mainstream vehicles have experienced a moderate depreciation rate of only 4%, while luxury vehicles saw a higher depreciation rate of 9.8%.

Moreover, we've found interesting variations based on the country of origin, with vehicles from US manufacturers depreciating by 11%, European vehicles by 8.6%, Korean vehicles by 3.8%, and Japanese vehicles by just 2.3%.

Despite the accelerated depreciation over the last 12 months, the accumulated level of depreciation remains relatively low when compared to historical standards.

For instance, 5-year-old luxury vehicles sold on Autozen's platform have retained an average of 59.9% of their original Manufacturer Suggested Retail Price (MSRP), while mainstream vehicles have retained 79.6% of their original MSRP. This is in stark contrast with the average typical retained value of 40% before the chip shortage.

Notably, some brands experienced significant depreciation over the past year, with Porsche and Tesla leading the pack at 28% and 30.5% depreciation, respectively.

In contrast, Japanese mainstream brands, particularly Nissan, have demonstrated remarkable resilience, with their vehicles depreciating by just 4% year over year.

However, it is essential to consider the starting point, as brands with previously inflated prices may still retain relatively high values despite substantial depreciation.

For example, while Porsches have significantly depreciated, a year ago their price was extremely high, and their retained value at 5 years remains toward the top of the leaderboard for luxury brands at 68.1%, second only to Mercedes Benz at 71.3%.

At the top of the leaderboard for retained value at 5 years is Toyota, maintaining over 95% of the original MSRP. Meanwhile, Jaguar and Cadillac are at the bottom of the chart, at just under the 45% mark for retained value.

Drivers Behind Pricing Changes

Beyond the desirability of individual models, multiple factors have contributed to the fluctuation in used car prices. The trickle-down effect of new car prices and inventory levels are playing a pivotal role in keeping used car prices high. The chip shortage led many Original Equipment Manufacturers (OEMs) to increase their MSRP for recent model years, consequently raising the prices of recent model year used vehicles and cascading down to older inventory as well. Additionally, the willingness of consumers to pay close to or even above MSRP for used vehicles in the absence of new inventory and long wait times further influences prices.

As the market dynamics have evolved, some OEMs now boast a good level of inventory, or even a surplus. Consequently, some OEMs and dealers are offering discounts and incentives compared to MSRP, exerting downward pressure on used car values.

Interest rates also play a crucial role in determining the demand for used cars. With high-interest rates, consumers may find it more challenging to afford newer vehicles, thus increasing demand for older models in the mainstream segment rather than newer vehicles or luxury vehicles.

Furthermore, the chip shortage has led to reduced vehicle availability from the years 2020 to 2022, leading to older and higher mileage used cars staying in circulation. Buyers considering these older vehicles become more sensitive to the vehicles' reputation for reliability .

Let's Illustrate with a Few Examples: 

To exemplify the impact of various factors, let's take a closer look at the extreme cases of Toyota and Jaguar. 

Toyota, an affordable mainstream brand with the lowest level of inventory and a strong reputation for reliability, has emerged as a top performer in retained value at 5 years.

On the other hand, Jaguar, an expensive luxury brand with high inventory levels and a not as good a reputation for reliability, falls toward the bottom of the leaderboard for 5-year retained value.

However, it's essential to note that Jaguar's performance is still decent compared to pre-chip shortage typical benchmarks.

Outlook for the Used Car Market for ICE Vehicles: 

Looking ahead, with interest rates expected to remain high throughout 2023, the used car market for Internal Combustion Engine (ICE) vehicles is expected to continue its slow-paced depreciation.

While interest rates remain a neutral variable for the near future, other factors will play a more significant role in shaping used car pricing.

The primary driver influencing used car pricing will be the level of new car inventory. As production levels catch up with demand, the availability of newer models will increase, gradually putting downward pressure on used car prices.

However, this depreciation process is expected to be gradual and will likely take years to return to historical levels.

Notably, some OEMs with the lowest inventory that have not yet experienced significant depreciation and are still close to their peak value, such as Toyota and Honda, will eventually follow suit.

In the longer term, as interest rates decrease, affordability will improve, narrowing the depreciation gap between luxury and mainstream segments.

The Uniqueness of EVs (Electric Vehicles): 

Electric Vehicles (EVs) stand out as some of the most volatile vehicles in terms of used car prices. The primary cause behind their large depreciation year over year is the multiple price cuts implemented by Tesla on new cars in recent months.

Besides the immediate trickle-down effect on used EV prices, this has created uncertainty and further pressure on used car values, as professional buyers must factor in the risk of future price cuts when considering adding Tesla  or Tesla alternative EVs to their used inventory.

Tesla has de facto repositioned itself in the mainstream EV market, with the Tesla 3 and Y models representing over 90% of their sales and now priced competitively with other mainstream popular models such as the Ford Mustang Mache-E, the Kia EV6, the Hyundai Ioniq 5 and 6, Nissan Ariya or VW ID.4.

Additionally, an unprecedented number of new model launches have flooded the market as manufacturers strive to future-proof their businesses and participate in the EV segment.

As a result, some models have gained traction while others are struggling to find their market base and are selling at lower rates than their production level.

Continued new EV releases may force certain OEMs to discount unsuccessful models, further impacting used EV prices.

Recommendations Based on the Outlook

If you're considering upgrading from an older car to a newer vehicle, now is an opportune time, given that the price difference between older and newer models is currently very low compared to historical norms.

If you are considering selling your car only, now is still a great time to capitalise on the market's favourable conditions. While used car prices peaked approximately a year ago, the subsequent decrease has been gradual, resulting in current values that still remain exceptionally high by historical standards.

For those exclusively looking to buy a used car, it's essential to be mindful of the ongoing high prices and interest rates. However, don’t expect significantly better affordability for a year at the very least, as the depreciation rate is slow and interest rates are not expected to go down in a significant way for a while.

If you can’t wait that long, establish your budget and be realistic about what you can reasonably finance.  It's worth noting that the luxury segment of the market may have better deals if they align with your budget, as they are ahead of the mainstream in their depreciation cycle. 

If you are considering buying a new car, the landscape has evolved over the past year. Makes with limited inventory may leave little room for negotiation, but there are plenty of other brands that offer negotiation opportunities.

Some manufacturers are even advertising substantial discounts of up to $10,000 on select models, providing advantageous opportunities to ease the burden of financing (looking at you RAM and Infiniti!). If you can make a significant down payment, you can do very well. 

If you have your sights set on an Electric Vehicle (EV) purchase, it's crucial to be mindful of the evolving market dynamics. The continuous release of new EV models and potential further price cuts from Tesla will likely continue to drive market volatility. It's worth mentioning that government incentives for EVs are currently available but will not be around forever and should be a factor to help some consumers make the jump.

In conclusion, the used car market remains highly dynamic and complex, influenced by a myriad of factors that drive pricing changes. Autozen's data-driven approach is shedding some light on true market transaction data, offering valuable insights to our customers. More importantly, when selling your car, Autozen removes the guesswork of setting a price and the stress of negotiation, thanks to our platform gathering together professional buyers to bid on your vehicle.