This week, the used vehicle retailer Carvana saw its shares plummet by more than 40 percent in a single day. This steep drop came after a record year in 2021 with over $12.8 billion in revenue. Carvana’s descent is just one indication of the falling used car market.

Wholesale prices of used vehicles have reached their lowest level in more than a year. That means retailers like Carvana that purchased their inventory at record highs in the previous months are finding it difficult to sell at a profit.  

The Manheim Used Vehicle Value Index, which tracks prices of used vehicles sold at U.S. wholesale auctions, saw record-high levels in January when used cars were often more expensive than their new counterparts. This abnormal period was followed by six months of consecutive decline. Cox Automotive stated in their market report that the Manheim index has declined 15.6 percent this year. In November, the index dropped to 199.4, the first time below 200 since August 2021.

This drop comes as retail sales have declined. Recession fears are increasing, as well as interest rates. Simultaneously, new vehicle availability is rising. The semiconductor chip shortage that left dealer lots sparsely populated in previous months is improving. Consumers that may have purchased used vehicles in the shortage are now shopping for new cars.

That does not mean used retail prices have dropped yet. Like Carvana, most retailers are pricing their vehicles at a profit from their previously inflated wholesale prices. Cox reported that the average listing price of a used vehicle is down less than one-half of a percent from the beginning of the year.