Record high used-vehicle prices will come down. The question is how fast, according to a new KPMG white paper titled, “Used car prices could crash — will they?”  

The stakes are high, for consumers, auto dealers, auto manufacturers, and auto lenders. In November 2021, wholesale prices for used cars were up 44% over November 2020, KPMG reports. In December, J.D. Power estimated the average used vehicle was selling for a record $30,000, according to the white paper.

The jury is still out whether inflated used car values fall suddenly or slowly over time. 

Consumers now pay more to buy a used car, and their trade ins are more valuable than ever. But they also pay inflated prices for new vehicle because new vehicle inventories are strained. The new-vehicle shortage is a root cause for skyrocketing used-vehicle values. New-car shoppers turn to used vehicles when they can’t find the new vehicle they want.

Used-vehicle demand has risen so high that some used vehicles have grown in value over time. That’s unheard of. Used vehicle values usually decline with age and mileage. But now, prices are going up on ordinary used cars and trucks, KPMG said.

Eventually the chip shortage and other supply problems will ease, and the industry will right itself. When that happens prices will fall. Another possibility is that inflation will get out of control and lead the country into a full-blown recession. That would push down demand.

As vehicle prices head into unchartered territory, the auto industry needs to prepare for both scenarios.