Used Car Inventory Shrinks Ahead of Busy Spring Buying Season

There's a spike in used car sales every spring. It has started early this year. But there's a problem — America's used car dealers are low on cars to sell.

"Used-vehicle sales have been up significantly, causing inventory to fall quickly in recent weeks and leaving dealers with especially tight inventories for the tax refund and spring selling season," said Charlie Chesbrough, Cox Automotive senior economist.

Cox Automotive is the parent company of Kelley Blue Book.

At the end of February, America's car dealers had about 2.07 million used cars in stock. At the end of February 2021, when COVID-19 lockdowns were in full swing, they had 2.6 million.

Car dealers measure their supply of cars to sell in a metric they call days of inventory — how long it would take them to sell out at the current sales pace if they couldn't acquire more cars to sell.

The total days’ supply at the end of February stood at 41, down from the revised 49 days’ supply at the end of January.

As with new cars, the lower the price, the tighter the inventory. Days’ supply for used vehicles priced under $10,000 was 31. Days’ supply for vehicles priced between $10,000 and $15,000 was 37, between $15,000 and $20,000 was 40, and between $20,000 and $35,000 was around 41. Vehicles priced above $35,000 had the highest days’ supply at 49.

Tax returns fuel the usual spring sales surge.

The 2023 tax refund season is well ahead of last year in terms of the distribution of refunds, but the average refund is down. The number of refunds issued is about 11% higher than at this time a year ago, Cox Automotive reports.

That's sending shoppers to sales lots earlier than normal while supply is low.

Used car prices have been falling in recent months. The average used car in America sold for $26,068 in February — down 1.7% from January's price.

That trend, however, could ease or even come to an end. "Used prices may fall further, but it seems unlikely a massive decline will happen given the supply situation," Chesbrough says.

There are some signs prices could rise. The wholesale prices car dealers pay at auction for the used cars they later sell rose 1.8% in the first half of March.

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