Used car prices poised for spring spike amid tight supply

Every spring, tax refund season brings a wave of used car buyers into the market. But this year, the usual seasonal bump is colliding with a deeper supply shortage, likely pushing the market toward another price surge.

Yes, but used car supply, already stretched thin by persistent inventory shortages since the pandemic, is shrinking further. Dealers started March with just 42 days' worth of used inventory, down 8 days from January and much tighter than historical norms.

The big picture: The current supply crunch traces back to 2022, when automakers sharply reduced leasing due to production shutdowns which resulted in a shortage of new vehicles. Just 18% of new cars were leased that year, according to Edmunds. That’s about half the usual share.

• As a result, roughly 2 million fewer off-lease vehicles (highly desirable 1-3-year-old used inventory for dealers) will hit the wholesale market in 2025.

• With fewer recent-model cars available at wholesale auctions, dealerships must aggressively compete for limited inventory, bidding prices higher and driving up consumer costs downstream.

Between the lines: While overall used-car prices are down slightly compared to their 2022 peaks, they're still roughly $5,000 above levels from five years ago, says Cox. And any consumers hoping for a price break in the near future—will probably be disappointed.

What to watch: Dealers will likely continue seeing strong retail sales numbers this spring—but margins could face pressure if auction prices escalate further, tightening profit opportunities.

The bottom line: The combination of tax-driven demand and a structural shortfall in quality used inventory is setting the stage for yet another round of rising used car prices in spring 2025.

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