Are Your Used Vehicle Prices Right for the Current Market?

With April in the books, I thought I’d take a moment to highlight a feature of the current used vehicle market that, judging from recent conversations with dealers, appears to have been misread or overlooked entirely.

I’m talking about the steady decline in used vehicle retail prices since the beginning of the year. In this week’s Cox Automotive Auto Market Report, Chief Economist Jonathan Smoke spells out the situation: Since January, retail prices for used vehicles have declined 5.9 percent. By comparison, during the first four months of 2019, retail prices for used vehicles declined 0.1 percent. Smoke also notes that the pace of depreciation in the wholesale market is a click or two higher than normal.

Such a sustained stretch of retail price softening hasn’t happened in quite a while. We saw some retail price declines last year, but we also hit stretches where they were on the rise following an increase in demand, which was often segment specific.

Despite the retail price softening, I often see little or no sense of urgency on the part of dealers to make sure their retail asking prices are in line with the market. Across the country, many dealers are carrying vehicles that are priced not to sell. They’re making their monthly numbers by cheap-selling the fresh stuff that isn’t aged or investment-distressed—a sub-optimal sacrifice of gross for the sake of volume.

My guidance to dealers in this current moment has three parts:

Reckon with the painful cars. Dealers are currently carrying an average 45 days supply of used vehicles. By definition, such dealers are stocked to carry cars from one month to the next. When the cars celebrate their first or second monthly birthday, it’s a sure bet the vehicles represent retail pain when they sell. So what’s the point of holding on to them? They’ll only get worse over time, which means it’s time face the pain and stop kicking it down the road.

Be realistic about each vehicle’s potential on Day 1. This step is much easier for ProfitTime GPS dealers. Why? Because the system scores every vehicle’s investment potential on Day 1. The system also serves up retail pricing recommendations to connect the vehicle to a retail price point that’s market-honest and -realistic and attuned to the vehicle’s investment value. The challenge for every dealer, though, is what you do when know you’ve got a troubled car on Day 1. If you simply can’t resist the urge to “give the car a shot,” keep your “shot” as short as possible.

Exercise daily pricing discipline. Market conditions are always on the move. I suspect Smoke would agree that, comparatively speaking, market conditions also move faster, and in more surprising ways, now more than ever. The upshot: If you’re not assessing each vehicle’s pricing position at least once a day, you’re moving too slow, and your cars probably are, too.

As a closing note, I’d add that I didn’t hear anything in Smoke’s report that suggests the current market dynamics will shift course any time soon. That’s not surprising to me, since everything we’ve seen in 2024 so far suggests wholesale and retail market efficiency is back in full force and dealers’ used vehicle gross profits, if not sales volumes, show it.

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