Used Car Prices Surge in January as Supply Constraints Tighten
Washington, D.C. – The start of 2024 saw mixed trends in new and used car prices, with used vehicles continuing their upward trajectory in January’s Consumer Price Index (CPI) report. The latest data shows that used vehicle prices jumped 2.2% in January, marking the largest increase since May 2023, while new car prices remained flat for the month and declined 0.3% year-over-year.
Overall, consumer prices in the U.S. rose 0.5% month-over-month, the biggest increase since August 2023, with annual inflation ticking up to 3.0% from December’s 2.9% gain. Used vehicle prices have been climbing steadily since September, with January’s rise being the largest in nearly a year. However, despite recent increases, used car prices remain 14.5% lower than their February 2022 peak. That said, they are still 23.6% higher than in July 2019, demonstrating the lasting effects of the pandemic-era vehicle price surge, which saw used car prices climb over 40% annually in mid-2021 and early 2022.
Supply Constraints Drive Up Used Car Prices
One major factor behind the rising used car prices is supply constraints. The Manheim Used Vehicle Value Index, which tracks wholesale auction transactions, rose 0.4% in January and 0.8% year-over-year, signaling unexpected strength in the used car market.
“While it’s not yet spring, wholesale values increased more than we usually see in January, with particular strength at the end of the month,” said Jeremy Robb, senior director of Economic and Industry Insights at Cox Automotive. “Currently, retail days’ supply at used dealerships sits nine days lower than last year, and we are just now on the cusp of starting the spring wholesale market.”
The auto industry continues to feel the ripple effects of the supply chain crisis of 2021-2022. With fewer cars sold and leased during that period, the market is now seeing fewer off-lease vehicles returning, leading to inventory shortages and higher prices.
Seasonal Trends Could Push Prices Higher
Beyond inventory constraints, seasonal trends may contribute to further price increases. Spring is traditionally a strong period for auto sales, as consumers look for deals on current model-year vehicles and use tax refunds for down payments. Industry analysts anticipate further price pressure in the coming months.
Rising Auto Costs Extend Beyond Vehicle Prices
Beyond vehicle prices, the transportation sector is also seeing rising costs in maintenance, repairs, and insurance. Motor vehicle maintenance and repair costs rose 0.5% in January, up 5.9% year-over-year, while car insurance surged 2.0% for the month, climbing 11.8% annually.
Auto insurance costs have seen dramatic increases, with rates jumping 22.2% in April 2024—the fastest rise in 47 years. The rising cost of auto insurance is attributed to more expensive vehicles, higher costs for parts and repairs, and increased labor expenses.
Newer cars equipped with advanced technology, such as sensors and control modules embedded in bumpers and exterior panels, have significantly driven up repair costs. A minor fender bender can now result in repairs costing several thousand dollars. Additionally, labor costs have surged across industries since the pandemic, further escalating repair bills and insurance premiums.
As the used car market enters the spring season, industry experts expect continued price fluctuations driven by supply constraints, seasonal demand, and broader economic conditions. While new car prices remain stable, used vehicle prices and transportation costs are likely to remain elevated, influencing both consumer spending and Federal Reserve policy decisions in the months ahead.