It's a Buyer's Market for Used Cars, Edmunds Report Finds

Memorial Day used-car shoppers will be test-driving and deal-making in one of the strongest buyer's markets in recent memory, according to the latest Edmunds Used Vehicle Market Report. An ever-growing glut of vehicles coming off lease means shoppers who want a car between 3 and 4 years old will have a huge selection from which to choose.

This surplus also means dealers will likely be ready to negotiate. As a bonus, Edmunds analysts also noticed a dearth of vehicles 6 years old and older. Shoppers who have such cars can command top dollar for these in-demand trade-ins, Edmunds analysts said.

Edmunds' used vehicle report, which covers the first quarter of 2017, also found that this surplus of newer off-lease vehicles and an upward trend of manufacturer suggested retail prices (MSRPs) have driven used-car transaction prices to an all-time high: $19,227.

Edmunds analysts identified three factors for the increase in used-car prices:

  • Consistently high sales of 3-year-old and newer vehicles.
  • Older vehicles that are in greater demand are retaining higher value than they have in years past.
  • The "massive" MSRP gains of new vehicles are beginning to be reflected in used-car prices.

"The leasing surge we've seen over the past few years is taking hold and changing the face of the used-car market," said Edmunds Senior Analyst Ivan Drury. "With new-vehicle sales already beginning to stagnate, swollen inventories of off-lease used vehicles hitting the market and priced to move may cannibalize new-car sales and further strain residual values."

The popularity of leasing over the past few years caused a higher than expected inventory of used vehicles. These 3-year-old or newer vehicles are sought-after, and so are more expensive, but they also have seen a gradual increase in sticker price, thanks to new-car prices that are up 14.7 percent from the first quarter of 2010.

Meanwhile, the excess inventory of off-lease vehicles is putting downward pressure on residual values. Edmunds data shows that as residual values drop, MSRPs have continued to rise at a disproportionate rate, which means that, on average, a 3-year-old used vehicle is being sold for $1,200 less than the market anticipated it would be worth when it was new.

"The surplus of off-lease inventory isn't about to slow down anytime soon," Drury said. "The last few years have shown record-high lease rates and the expansion of leasing into virtually every vehicle segment." Coupled with the recent high volume of new-car sales, it's a buyer's market on the near-new side for years to come, he said.

As used-car shoppers seek more affordable options, used cars that are 6 years old or older are in great demand. But shoppers are finding fewer such vehicles to choose from, and as a result the retained value of a 6-year-old vehicle has increased about $2,900 since 2010.

"What this means for consumers is that it's a great time to weigh your options between buying a new or near-new used vehicle. Both sides are feeling the pressure of increasing inventories, so buyers are in a strong position to take advantage of great pricing and model availability," Drury said.

Read the complete Edmunds Used Vehicle Market Report for Q1 2017.