According to J.D. Power, used-vehicle prices are set to fall for the second year running in 2025, even though late-model inventories are heading for their lowest level in a decade. Automotive News reports the news.
According to Jonathan Banks, VP of product development for J.D. Power's appraisal services, this stems largely from growing discounts on new vehicles, which are creating downward pressure on the used vehicle market.
Banks forecasts a 3-percent drop in prices for used cars and pickups this year. Used-vehicle prices fell by 4.8 percent in 2024, to an average of $28,400 in the U.S., after five consecutive years of increases.
According to Jonathan Banks, discounts on new vehicles are expected to reach around $4,000 USD in 2025, compared with $2,900 last year, resulting in price reductions of $550 on used vehicles from the previous three years and $400 on top-of-the-range models.
The supply of three-year-old vehicles on the market will reach a 10-year low in 2025, he adds. The reason? New vehicle sales in the U.S. fell to 13.7 million in 2022, the lowest figure in a decade, before recovering to 16 million last year. And that means a decline in the number of vehicles coming to the end of their leasing contracts this year, in 2022 and in 2023. Dealers will face challenges stocking late-model pre-owned vehicles.
The analyst did not provide a picture for Canada, but generally speaking, when it comes to consumer habits in the new and used markets, there are many similarities between the two countries.
“We've lost millions of sales, and those millions of vehicles that we would normally sell new will never be sold on the used market. So the used market is going to tighten, and 2025 will be the low point in supply.”
According to Banks, residual values are likely to be stable as consumers priced out of the new-car market increasingly turn to the dealer used-car market. Used-car sales have also moved towards a higher-end mix - only 20 percent of vehicles sold for less than $20,000 USD last year, compared with 41 percent five years earlier.
For retailers, J.D. Power reported that the average profit on a used vehicle in the U.S. fell to $2,500 in 2024, from $2,800 the previous year. This is still higher than the January 2020 average of $2,200, but well below the peak of $4,000 reached in November 2021.
J.D. Power data show that U.S. used-car sales fell to 10.8 million in 2024, compared to 11.3 million in each of the previous two years. Dealers needed about two days more than in 2023 to clear their inventories, which ultimately had a downward impact on prices.
We'll be keeping an eye on the Canadian market, but as we said, the trend should be the same here.