The used car market is bracing for a significant shift in 2025, with prices expected to rise due to a confluence of factors. A shortage of three-year-old vehicles, typically the sweet spot for used car buyers, is the primary driver. This scarcity stems from the historically low new car sales in 2022, a direct result of COVID-19 related supply chain disruptions.
alt text: Graph showing new car sales trends
The 2022 New Car Sales Slump and its Impact on Used Car Prices
Edmunds, a leading car shopping platform, predicts 2025 will see a dramatic decrease in the availability of three-year-old used cars. The reason? 2022 witnessed the lowest new car sales figures since 2011, with only 13.8 million units sold. This reduced supply is now creating a ripple effect, impacting the used car market three years later. Fewer new cars sold in 2022 translates directly to fewer used cars available in 2025.
Experts like Brian Moody, executive editor of Kelley Blue Book and Autotrader, acknowledge that this impact has been anticipated since the height of the pandemic. The repercussions of those disruptions are now becoming a reality for used car shoppers.
The Decline of Leased Vehicles Further Constrains Supply
Adding to the inventory crunch is a significant drop in leased vehicles returning to the market. Edmunds forecasts that leased vehicles will account for a mere 18% of used car sales in 2025, a low not seen since the Great Recession. The sharp decline in lease originations in 2022 means fewer vehicles are coming off lease now, further shrinking the pool of available used cars.
This decrease is substantial. Between 2019 and 2022, over 4 million used vehicles annually came off lease. Edmunds projects that number to plummet to around 2 million in 2025. This scarcity of gently used vehicles, including those two, three, and four years old, which are typically still under warranty and offer significant value, will exacerbate the upward pressure on Used Car Prices.
Rising New Car Prices and Potential Tariff Impacts
The used car price surge couldn’t come at a worse time. With the average new car price nearing a record high of $48,118 in January 2025, according to Edmunds, many buyers are turning to the used car market. However, even used car prices have climbed, averaging $24,402.
While the Trump administration’s trade policies and potential tariffs on imported cars and parts have created uncertainty, the impact on used car prices remains less clear. Experts suggest that while tariffs could significantly increase new car prices, their effect on the used car market might be indirect. Increased demand for used cars as a result of higher new car prices could push used car prices higher.
Navigating the Used Car Market in 2025: Alternative Strategies
With the anticipated scarcity of gently used vehicles, prospective buyers in 2025 might consider several alternatives:
Exploring Older Vehicles:
While the traditional preference has been for three-year-old cars, the increasing durability of modern vehicles makes older models, even those five years or older, a viable option.
Considering Luxury Vehicles:
An oversupply of used luxury vehicles might offer an unexpected opportunity. These vehicles tend to depreciate more quickly, potentially providing good value for buyers open to an older model.
Evaluating Electric Vehicles:
Used electric vehicles also experience significant depreciation, making them another potential avenue for cost-conscious buyers.
Rethinking New Cars:
With used car prices potentially approaching new car prices, and factoring in dealer discounts and lower interest rates often available on new car loans, buying new might be surprisingly competitive in some cases. The average used car loan interest rate hovers around 11.3%, significantly higher than new car loan rates, which can be as low as 2%.
Conclusion: Preparing for a Tight Used Car Market
The used car market in 2025 is poised for a period of tight inventory and higher prices. Understanding the factors driving this shift, and considering alternative strategies, will be crucial for prospective buyers navigating this challenging landscape. Buyers should be prepared to adjust their expectations, explore different options, and potentially consider vehicles outside the typical three-year-old sweet spot.
