The Expert Podcast

So, what can buyers expect for used car prices in the coming year? Obviously, 2021 was a very unusual year for used car values and even new car values for that matter. But many used cars were worth more than they were as a new car—brand new—when they were sold two to three years prior. Here's a great article and graph from Blackbook, which is one of the largest used car value guides. It tends to be slightly regional, with the Southeast part of the United States using it quite a bit. One of the pieces of information hidden away in this article talks about how the used car market for eight to sixteen-year-old vehicles had a record 28 percent increase in 2021. Dealers are even having to look at older model years to purchase to find vehicles for their shoppers and buyers, and that 28% sales increase trend is continuing into 2021.

The real headline of last week is the increase in eighteen to sixteen-year-old vehicles, which is shown in a chart here. Think about it—eight to sixteen years, pick the middle of that. Maybe a 12-year-old vehicle; you’re talking about a 2010 vehicle, and at the farther end of that range, you're talking vehicles from the 2000s, like 2008 or 2009. Those are old cars, and people are still buying them and paying big money for them.

So, what does that mean for you as a buyer? If you're in the market for a used vehicle, you may find that a dealer or retailer is stretching back to find these older cars. It may be that the value is not going to be that great on those vehicles. The price is going to be so high that if you go forward a few more years and less mileage, the difference in price might not be that great. The reason why dealers are buying these older cars is just to have something in their inventory to sell, even at a higher price.

For example, you might find a 2010 Toyota Tacoma pickup truck priced at $14,000 to $15,000. But if you went for a 2015 model, it might cost you around $20,000. It’s going to be more money, but the difference might not be that great based on the year and mileage. So, be aware that just because a dealer has vehicles from that era and age on their lot, the prices are spiking up. You might not find such a good value once you get into really new vehicles, like those from 2020 or 2021.

They’re talking about the sweet spot for pricing on older vehicles. As a buyer, you might find that the sweet spot is maybe five to eight years old—mid-teens era vehicles. Make sure you're checking miles, condition, and the title history of the vehicle. But for most buyers, the sweet spot is five to eight years old right now. Going forward in the coming years (2023, 2024, 2025), it’s likely going to be the same thing.

Here’s part of the reason why: think about the new car market from 2021 and 2022. Inventory levels were dramatically lower. Some manufacturers sold less than half the volume, and sometimes even a quarter of the volume that they normally sell in a year in 2020, 2021, and 2022. This means there will be even fewer used cars from those years going forward. Five years from now, in 2027, someone looking for a five-year-old car is going to find only 10% to 20% of the available inventory that would have been available five years ago. So, plan accordingly. If you own a vehicle and you’re thinking about selling it in two or three years, think about what that market’s going to be like.

If you own an older vehicle, anywhere from 2004 to 2010 or 2011, now might be a time to sell that vehicle at a high price point, because the market is spiked up. It may continue to stay high, but the price is probably not going to go up. It may decline at a lower rate, but the price is probably not going to go up.

Now, the question comes up: What about electric vehicles and hybrids? Are those seeing the same type of increase? Here is an example from Auto Remarketing, a great resource for automotive news in the used car market industry. Prices on used hybrids and EVs jumped more than 40% last month. That’s huge! That’s an increase factor that is unheard of. The EV and hybrid market is seeing a bigger increase than internal combustion engine vehicles. For example, EVs were up 46.9%, while non-hybrid, non-electric vehicles were up 34%. So, all used cars are up in value, but hybrids and EVs are up more.

Some of it has to do with the gas price situation in the U.S., with inflation of fuel prices, but some of it is also more adoption of the electric vehicle platform. This information comes from IC Cars, and we've featured them before. The big takeaway is that hybrids and electric vehicles are making headway in the used car market in addition to the new car market.

One of the biggest factors in used cars is the status of the battery. With a regular internal combustion gasoline engine, mileage on the odometer is a good indication of the vehicle’s condition. You're going to want to do a check on the vehicle to make sure the engine's good, the transmission is good, and have a mechanic inspect the vehicle, or have it certified by a new car dealer. But on hybrid or electric vehicles, the most valuable or expensive component is the battery. The battery’s condition may vary from the mileage on the odometer because a lot of it has to do with heat, how many times it’s charged, whether it uses a fast charger or trickle charger, if it’s run down to zero frequently, whether it’s parked at full charge in high temperatures, and how it performs in cold temperatures. These factors have more of an effect on electric vehicle batteries than just the calendar time, like model year or mileage. The cycle history of the battery is much more important than the calendar history.

So, for electric vehicles, be aware that prices are going up, but buyers need to start adopting different criteria for evaluating the condition of hybrids compared to what we’ve all been used to for the last 50 years on internal combustion gasoline engines, like looking at mileage on the odometer or checking compression on the cylinders.

Remember, an internal combustion engine has many moving parts internally, lubricated parts, and operates in a very high heat, high pressure, and high-stress environment. It’s a reciprocating engine with massive metal parts moving back and forth at high speeds. It’s amazing that they last as long as they do. An electric vehicle, on the other hand, has no such parts. It has an electric motor that doesn’t have reciprocating parts, high stress, high friction, or explosions like an internal combustion engine. The battery is where the stress happens—through the charging and discharging.

Some EV batteries represent half the value of the vehicle, so you want to make sure the battery is up to snuff and can last a long time. There are ways to check the condition of the battery in advance, other than just looking at the mileage.

The takeaway is: vehicle prices continue to go up in the used car market. Plan accordingly, whether you’re buying or selling a vehicle. Make sure that your future plans for keeping your vehicle or buying a new one or selling a vehicle are based on the current market trends, as vehicles might be at the top of their value range right now.