Consumers getting tax refunds help drive the used car market early in the year and since tax refunds are up 7% compared to last year, it follows that used car sales are up during the same period. However, sales were up 16% in February, which is well ahead of the year-ago results.
Used car sales are on the rise as tax refund season is underway. Buyers have more to spend as refunds are up 7%.
The result is used car inventory at the retail level is shrinking. There were 2.23 million vehicles available on dealer lots at the beginning of February. The first week of March saw that number dropped to 2.18 million, which is 1% lower than last year at this time. In short: people like used cars and with good reason.
The average tax refund this year is $3,453 and with the average used car listing price at $25,006, according to Cox Automotive, the refund alone comprises more than a 10% down payment. The larger down payment cuts the buyer’s monthly payment, gives them a better interest rate, and helps insure they’re not underwater on their purchase.
Sales are up
Used retail sales reached 1.57 million vehicles in February, up 16% compared to the 1.36 million reported in January, according to Cox. Used-vehicle sales typically increase from January to February, this year’s 16% increase is the largest in recent years, said Scott Vanner, senior analyst of Economic and Industry Insights at Cox Automotive.
Higher tax refunds make it easier for buyers, helping increase equity and lower interest rates.
In terms of types of used vehicles sold, retail used-vehicle sales and certified pre-owned (CPO) sales increased month over month in February, according to data reviewed by Cox Automotive.
February’s CPO sales are estimated at 203,663, up from 203,071 in January, marking a 0.3% increase. Volume rose just below 600 units last month but fell over 7,000 units from last year. CPO sales in February were down 3.4% year over year.
Cox analysts noted that 1.57 million used vehicles were sold at retail, which includes franchised and independent dealers, last month. That was good for a 6% increase year-over-year. Days’ supply of used vehicles at the beginning of March was 42, down eight days from the beginning of February and down three days compared to last year.
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Tough to find
Used-vehicle sales typically increase from January to February, this year’s 16% increase is the largest in recent years.
While the inventory of used vehicles is decent, those looking for cheaper used cars are going to to have to hunt a little harder. Used cars below $15,000 continue to show low availability, now with only 30 days’ supply, five days lower than the same time last year and 12 days below the overall industry average.
The top five sellers of the month were listed at an average price of $23,531, about 6% below the average listing price for all vehicles sold. Once again, Ford, Chevrolet, Toyota, Honda and Nissan were the top-selling brands, accounting for 51% of all used vehicles sold.
What’s it mean?
Used car inventories are already shrinking, but sticker prices dropped compared to January’s numbers. However, if the Trump administration institutes the tariffs is suspended for 30 days, new car inventories are likely to drop and prices will rise.
When a lack of inventory pushes new vehicle prices up, many buyers flee to the used car market looking for a deal. But with used car interest rates still averaging in the double-digit range and the price likely to go higher as demand rises and supply shrinks used cars may not be a good deal for too much longer.
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