Pricing Trends and Market Dynamics in the Used Car Sector

The used car sector is currently experiencing tight supply and rising prices, driven by several interrelated market dynamics. The supply of used vehicles up to eight years old is expected to decline by about 3.2% due to lower new vehicle sales and lease originations in recent years, which reduces the flow of nearly-new vehicles into the used market. This constrained supply is a key factor pushing prices upward.

Pricing trends show a continued surge in used vehicle prices, with average prices reaching record highs and maintaining a high-price floor environment. For example, average used car prices increased by over 6% year-over-year recently, with some months showing consecutive price gains. This is partly due to fewer lease returns and trade-ins from recent model years, which limits dealer inventory replenishment and keeps upward pressure on prices.

Market dynamics influencing these trends include:

• Incentive spending on new vehicles is rising again, reaching around 9% in 2025, as manufacturers and dealers try to offset high MSRP increases and elevated interest rates. Despite these incentives, new vehicle affordability remains a challenge, pushing more consumers toward used cars.

• Consumer behavior shifts include longer financing and leasing terms, and a tendency to downsize or choose less premium models due to affordability constraints.

• Segment preferences show SUVs and trucks dominating the used market, accounting for over 60% of transactions, with these segments driving much of the price increases. Meanwhile, fuel-efficient sedans like the Civic and Corolla remain in demand and have also seen price gains despite losing market share.

• Electric and hybrid vehicles are gaining market share, reflecting growing environmental awareness, but their pricing is influenced by fluctuating government incentives and rebates, which have caused regional volatility.

• Digitalization is transforming the buying process, making it easier for consumers to shop for used cars online, which may influence market accessibility and pricing transparency going forward.

In summary, the used car market is characterized by reduced supply, rising prices, and shifting consumer preferences, with affordability pressures on new vehicles driving sustained demand for used cars. Incentives, segment trends, and evolving technology adoption also play significant roles in shaping market dynamics.