Used car values are depreciating at a faster pace

Big picture: Used car depreciation accelerated last week – the largest single-week decline since mid-January, according to Black Book. This comes after a period of relative stability leading into Memorial Day weekend.

Data dive: 

• Auction sales rate dipped 2% to 53% last week.

• Car segments saw a 0.34% drop compared to a steeper 0.55% decrease for trucks.

• Sporty and Premium Sporty Cars (+0.03% and +0.01% respectively) continued their upward trend. Sporty Cars have seen gains for 10 straight weeks (average weekly gain: 0.26%).

• Subcompact cars (-0.77%) saw the steepest decline last week, extending their eight-week losing streak (average weekly drop: -0.41%). 

Why? There are a few possible reasons:

First, OEM incentives (such as cash rebates or special financing rates) encourage new car sales. These incentives can reduce the overall cost of new vehicles. When new cars become more affordable, some buyers may opt for new vehicles instead of used ones.

However, lower new car prices can also lead to higher depreciation for new cars. As their value drops faster, it affects the needle for used car pricing.

Increased supply of used cars (due to trade-ins and lease returns) can lead to lower wholesale prices.

Between the lines: Car owners are holding on to vehicles for longer, leading to older, higher mileage units at auction.

Cars and light trucks on the road now average 12.6 years old, a two-month jump from 2023 and a new all-time high.

Looking Ahead: The coming months will test for the used car market's resilience. If new car inventory levels keep rising and OEM incentives tick up new car prices will continue their downward trend. Meaning used car prices could see a sustained correction as opposed to a short-term dip.

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