Used car prices increase at a slower rate, age of vehicles in operation rises

Used car prices rose moderately in June as the number of vehicles that are operating in the United States has continued to increase.

In a recent report on the wholesale market, Jonathan Smoke, chief economist for Cox Automotive, said prices have risen, but the increase has been less than it was in 2018. The usual rise in the spring during tax refund season came later than it did in 2018, and the average tax refunds were lower. But consumers who drive the used car market seemed to benefit the most with regard to tax refunds, he said.

Used car prices rose 0.61% in June, and the prices were up 4.1% from the same month in 2018, said Zo Rahim, manager of economics and industry insights for Cox Automotive. As a result, the Manheim Used Vehicle Value Index was at 140.5 in June. The rise in used vehicle prices is exceeding the increase in new car prices as new car prices typically increase 3%, while used prices grow 2%, Rahim said. In June, midsized cars and pickups outperformed the other vehicle segments in the wholesale market.

Used vehicle sales volume fell 3% to a seasonally adjusted annual sales rate of 39.8 million vehicles in June, from 41.1 million in the same month in 2018, according to Cox Automotive. Consumer demand rose in June 2018 amid tariff concerns and rising interest rates.

Fewer cars are coming into the market as the share of SUVs rise, Smoke said, adding there have never been fewer mid-sized cars, and ridesharing companies use mostly mid-sized sedans.

The second-quarter dealer sentiment index showed dealers see used vehicle inventory falling, which was a reversal from the first quarter when inventory was growing, according to Cox Automotive. However, like in the first quarter, more feel the existing market is weak compared to those who feel the market is strong. Dealers remained optimistic about the next quarter but weren’t as positive as they were in the previous period.

The remainder of the year is expected to regress into a more normal seasonal pattern, Smoke said, with the exception of trade impacts and if new tariffs are established.

The average age of vehicles operating in the United States rose to 11.8 years, according to IHS Markit. Over the past five years, the average age of vehicles rose 4%.

“Better technology and overall vehicle quality improvements continue to be key drivers of the rising average vehicle age over time,” said Mark Seng, director of global automotive aftermarket practice at IHS Markit. “The 40% drop in new vehicle sales due to the recession created an acceleration in average age like we’ve never seen before. In the last couple of years, however, the average age has returned to its more traditional rate of increase.”

Vehicles in operation rose 2.2%, or by 5.9 million, to 278 million vehicles in 2019, from 2018. In 2016, the number rose 2.3%, the highest annual increase since IHS Markit has been tracking the growth. “The increasing VIO fleet is providing a robust new business pipeline for the aftermarket,” said Seng. “A larger fleet means more service and repair opportunities in the future.”

Between 2018 and 2023, vehicles in operation that are new to five years old will increase by 2%, and the vehicles that are six to 11 years old will increase by 27%. This is expected to be a positive trend for the independent aftermarket as the number of vehicles rises in the repair “sweet spot,” or those that need the most repairs, according to IHS Markit. Over the same period, the number of vehicles in operation that are 12-15 years old will fall by 27%.

“While the decrease in light vehicles 12-15 years of age looks alarming, it relates to the drop in sales due to the recession,” Seng said. “There is simply a lack of 2008 and 2009 model year vehicles due to the lower sales numbers during that timeframe. Even the model years from early in the recovery are lower in number. This disruption simply needs time to work its way through the fleet.”