Jennifer Moore
We all know that prices have been going up in recent years. Food prices alone have gone up 25% since 2019, and it has had quite the impact on pocket books. But what about car prices? Unfortunately, they’ve been going up, too—the average price of a new car is 29% higher than it was in 2020. Even used cars are costing us more—to the tune of 34%.
Does this mean that prices are going to keep going up? Will it continue to cost us more and more for the things we need, especially cars that get us where we need to go? In this article, we’ll look at the recent trends and offer insights into what we expect to see in used car prices in 2025.
Historical Trends in Used Car Prices
Over the past five years, used car prices have seen significant shifts, driven largely by global events and market disruptions. The COVID-19 pandemic in 2020 marked a turning point, leading to a surge in demand for used vehicles. This demand spike was fueled by factory shutdowns and supply chain issues that slowed the production of new cars, leaving many buyers with fewer options. Additionally, a global chip shortage further compounded delays in manufacturing, pushing even more buyers toward the used car market and driving up prices.
By 2021 and 2022, the market experienced record-high prices for used cars, with some vehicles retaining an unusually high percentage of their original value. However, as supply chains began to recover, prices started to level off in 2023. The stabilization was not uniform, though—regional and seasonal fluctuations continued.
As we move through 2024, we can assume that these trends provide a baseline for predicting 2025. While the market has shown signs of recovery, lingering economic factors and consumer habits will indeed continue to shape the used car market's future.
Factors Influencing Used Car Prices in 2025
Let’s jump into those factors a bit further, as many consumers don’t realize how their pooled behaviors can impact things like car prices. But it’s true! Here’s what you may be interested in knowing.
Economic Conditions
Inflation and interest rates play a big role in shaping the car market. If interest rates remain high, financing becomes more expensive, which could slow demand for both new and used cars. Similarly, economic growth or a downturn will impact how much consumers are willing and able to spend on vehicles.
Supply Chain and Production
The automotive industry is still adjusting to the disruptions of recent years. In 2021 alone, automobile manufacturers were unable to produce nearly 7.7 million vehicles as a result of supply chain challenges. And while production has improved, any lingering challenges—such as parts shortages—could limit new car availability, keeping demand high for used vehicles.
New Car Market Trends
The pricing and availability of new cars often ripple into the used market. If new cars remain expensive or hard to find, buyers may continue turning to used options, sustaining demand and prices.
Consumer Demand
Consumer preferences are shifting toward electric vehicles (EVs) and affordable options. In 2023 alone, nearly one-fifth of cars sold were electric vehicles. And sales are on the rise, going up about 35% year over year. That’s substantially higher than what we saw back in 2018.
So, as EVs grow in popularity, traditional gas-powered vehicles may see faster depreciation, depending on how quickly adoption spreads.
Technology and Vehicle Lifespan
Advancements in automotive technology, from safety features to powertrain durability, have made cars last longer. This trend may slow depreciation rates, keeping used cars competitive and valuable for longer periods.
Two Scenarios For Used Car Prices in 2025
The way we see it, though trends seem to indicate that prices will go up, there are two potential scenarios for us to consider. Either prices will indeed rise, or they will drop. Here’s what we can expect based on those two possibilities.
Scenario 1: Prices Rise
If supply constraints persist or demand for affordable vehicles increases, used car prices could continue to climb. Supply chain issues, particularly in sourcing critical components like chips, might slow the production of new vehicles, keeping the market tight. At the same time, inflationary pressures could push up production costs, indirectly driving up used vehicles' prices. Consumers looking for budget-friendly alternatives may increase demand for used cars, which could further strain limited inventories.
Economic factors also play a role. Higher costs for necessities like food and housing may prompt consumers to prioritize value in the used car market, leading to increased competition. If inventory remains constrained, prices may stay high or even rise further as buyers vie for available options.
Scenario 2: Prices Drop
On the other hand, if supply chains stabilize, increased availability of new vehicles could relieve pressure on the used car market. “There’s too much inventory, and dealers are willing to negotiate,” said Charlie Chesbrough, senior economist and senior director of industry insights at Kelley Blue Book's parent company Cox Automotive. This shift would likely lead to greater seller competition, driving prices downward.
Additionally, higher interest rates may discourage borrowing, reducing demand across the market. As inventories increase due to lease returns or repossessions, sellers could find themselves with more cars than buyers. According to CarEdge’s Ray Shefska, automakers may respond by increasing incentives. “They don’t like to lower MSRPs—it’s almost seen as a sign of defeat. But what automakers are more than willing to do is increase incentives. That’s exactly what I expect to see in 2025.”
Refinancing Your Existing Auto Loan Might Be the Best Strategy for the Near Future
Though there is no crystal ball, what will happen with the market is unpredictable, to say the least. For many car enthusiasts and car owners, maintaining their existing car might be the best course of action. And, if those cars are still tied to a loan with a high interest rate or undesirable loan terms, an auto loan refinance could be the way to go.
To see how much money you can save by refinancing your car with RateWorks, complete our application today for a free quote.
