According to J.D. Power, the average transaction price for a used vehicle at franchised dealerships in September 2022 was $31,025. September 2022’s average transaction price was roughly flat compared to August 2022 but represented an increase of 7.2% compared to September 2021.
Used vehicle retail transaction prices have significantly risen since the start of 2021, when those in the auto industry first became aware of a semiconductor microchip shortage. September 2022’s average transaction price was 30.3% higher than the average transaction price in January 2021. Limited new vehicle availability due to the chip shortage has pushed more buyers into the used vehicle market, which has pushed retail prices to their current levels. We expect that used vehicle retail prices and overall used vehicle demand will remain elevated until new vehicle production is normalized.
Higher used vehicle prices have also caused consumers’ monthly payments to rise. In September 2022, the average monthly payment for a used vehicle finance contract at franchised dealerships was $557, an increase of 0.8% compared to August 2022, and a rise of 9.4% compared to September 2021. Throughout 2022, consumers’ monthly payments have also been pushed higher due to rising interest rates.
In its efforts to rein in inflation, the Federal Reserve has increased the Fed Funds Rate rapidly throughout 2022. The Fed Funds rate has risen from a targeted range of 0% to 0.25% to a range of 3.75% to 4% in a little more than six months. This has increased interest rates throughout the economy, including auto loan rates. At the end of September 2022, the average rate for a used vehicle finance contract at franchised dealerships was 8.9%.
September 2022’s rate is the first time since the start of the pandemic that the average rate on a used vehicle finance contract has surpassed its pre-pandemic level. We expect that the Fed will hike rates higher in the coming months, which will place further upward pressure on consumers’ monthly payments.
Looking ahead, we expect that used vehicle retail prices will remain elevated until new vehicle production returns to a more normal level. We could see overall used vehicle retail prices fall somewhat following the trends seen in the used vehicle wholesale market. Wholesale used vehicle price levels declined for three months in a row, according to the J.D. Power Used Vehicle Price Index. Changes in used vehicle retail price levels typically lag wholesale prices by three to six months.
For more information on the used vehicle market, please see our post on November 2022’s used vehicle wholesale market trends.
