If you're looking to sell your vehicle at this time, you might be in for a bit of shock when the price you're offered is lower than what you had in mind. Used car values are falling due to the coronavirus pandemic and the subsequent downturn in car sales. Here's how the two are connected.
The U.S economy took an unprecedented hit beginning in the second half of March as many businesses closed in efforts to contain the pandemic. As most of the country came under shelter-in-place orders, vehicle factories either halted production or shifted their efforts toward making equipment to help medical professionals. Many car showrooms also closed, people stayed home, and sales began to plummet as a result.
The dramatic drop in car sales coupled with rising numbers of vehicles sitting on dealer lots is causing a trickle-down effect on used car values, according to Edmunds analysts. This will likely affect used car shoppers and those looking to sell their vehicles.
“Edmunds data showed that a three-year-old vehicle lost an average of about $1,200.”
How bad will it get? We can look to the past to make an educated guess as to how much value your vehicle could lose. In 2008, when the country last faced a major economic downturn, Edmunds data showed that a three-year-old vehicle lost an average of about $1,200, or roughly 10%, in value due to reduced demand and economic uncertainty. Our analysts anticipate the conditions we're currently seeing might affect vehicle prices similarly — if not more, given the severity of the downturn caused by the pandemic.
Adjusting to the New Normal
“We recommend doing your research by getting real-world offers for your vehicle.”
If you're looking to sell your vehicle now or in the coming months, know that this is a unique time and anticipate a lower offer than you might be hoping for. We usually recommend doing some research online to check the market value of your vehicle, but keep in mind that the figures you find might not yet reflect the impacts of the sudden massive shifts in supply and demand caused by the coronavirus pandemic. Instead, we recommend doing your research by getting real-world offers for your vehicle. These offers will give you a range for the current going price and allow you to make the most informed decision.
Let's take a closer look at some of the factors behind why you might see less on your next appraisal offer.
“Used car sales at franchised dealers fell 61% the first week in April.”
Many people have been either unable to get to a dealership or have decided to hold off on making a large purchase. Sales have declined, so much so that, according to J.D. Power’s Power Information Network, used car sales at franchised dealers fell 61% the first week in April.1
Dealers may eventually reduce prices to make slow-moving inventory more enticing to customers. While this might be good news for car buyers, lower prices also mean that dealers won't be as likely to pay as much for vehicles they buy from sellers.
Record Lease Returns Cause Surplus Inventory
Leases have become increasingly popular in recent years, and Edmunds estimates that over 1 million leases will be ending in the next few months. Combined with slowing car sales, the high number of lease returns means dealerships will have a growing surplus of inventory. If you own a vehicle that also happens to be a commonly leased model, you may not be offered as much as you expected on an appraisal since the dealer might already have too many in stock.
Lower Auction Prices Lead to Lower Dealer Appraisal Prices
Dealerships don't just get used cars via trade-ins; they also buy vehicles at wholesale auctions. According to J.D. Power’s Power Information Network, not only are vehicle wholesalers experiencing the same low volume of sales as dealerships, but the auction value has dropped 16% in mid-April.1 Most shoppers never have an opportunity to learn much about these auctions, but they do have an impact on car prices. In general, if a vehicle like yours is selling for a lower price at auction, this will likely mean that the dealer will make you a lower offer on your car.
Edmunds Says: The economy will likely take a while to recover, and so will the diminished value of your vehicle. If you still have a few years before your loan is paid off or your lease is up, then this downturn is unlikely to impact your car's value. We expect these short-term fluctuations to even out over time.
As businesses reopen and shoppers rebuild confidence in their situation and ability to buy, vehicle prices will begin to stabilize. People tend to "rediscover" the value of used vehicles as a financially sound option when coming out of a recession. And for those in need of a used car right now, we may be headed toward a buyer's market.
1The information supplied by J.D. Power’s Power Information Network is based on data believed to be reliable but is neither all-inclusive nor guaranteed by J.D. Power.