After surging to record-high levels over the past six months, US used car prices started dropping in February.
But used cars are still nearly 40% more expensive than they were in February 2021, thanks to supply shortages of new vehicles. It’s still worth selling your old jalopy, in other words.
Why used cars are still so expensive in the US
According to the Manheim index, which tracks used car sales, prices fell by 1.5% in the first two weeks of February, the biggest drop since July. After shooting up in the fall, prices had been mostly flat in January.
On a yearly basis, however, the index is still up about 38% from February 2021, including large monthly gains in the last year, such as a 10.8% increase in used cars prices in June 2021. These gains were driven by both a production slump and a semiconductor chip shortage.
February’s average daily sales conversion rate was down to 47.5% from 49% in January, which indicates that the fall in prices is going to dip further in the second half of the month.
As government pandemic assistance recedes, delinquencies on auto loans have also returned to their pre-pandemic trend versus the relatively strong credit performance the auto loan sector had shown during the pandemic.
Correction: An earlier version of this story incorrectly said used car prices rose by 1.5% in January; they were largely flat.