Prices are Rising but Not as Fast as Before
Last month we mentioned that we are expecting prices to come down by the middle of Q3, and our models are showing a strong used car market that is slowly losing its momentum. In June, we saw an average increase of over 5% and in July, the average retail used car price increase was 4.3%.
We decided to look into different segments of vehicles to see where the increase is most prominent. We analyzed over 1 million vehicles from 2016-2021, through July and segmented the manufacturers and models into different buckets:
- Economy - These manufacturers generally make economical cars, such as Ford, GM, Toyota, to name a few
- Entry Level Luxury- These are more upscale vehicles, such as Acura, Lexus, Audi, along with certain models such as the Chevy Corvette
- High End/Luxury - These manufacturers include Porsche, Tesla, and some Mercedes-Benz vehicles
- Business - These are vehicles used primarily for work purposes
Note, since we focused on used cars that were at most five years old, the average used car price is higher than the average used car price.
Economy Models Increased the Most
Up 5% in July 2021
One thing that we found was that the lower end vehicles and economy brands are increasing the most in the current climate. High End makes are not appreciating as much, as the consumers for a Mercedes-Benz will likely buy a new model as opposed to a used one, thus it makes sense that these vehicles don't appreciate as much.
The economy brands increased 5% in July, with top winners including the Honda CR-Z (+9%), Buick Spark (+9%), and Honda Fit (+9%). Overall, GMC and Dodge were the winners while Toyota and Ford appreciated the least.
There are two reasons for this in our evaluation. First, the vehicles that historically depreciate more are rebounding now, and second, loan originations for economy cars seem to be a hot area right now. Loans for all cars are not showing any signs of slowing down, and as long as a vehicle is getting a loan, dealers will be selling them at a premium price.
Entry Level Luxury Manufacturers Increased 3.6%
Brands that have both economy models that high-end luxury models we labeled as Entry Level Luxury brands. These brands, like Acura, Lexus, BMW appreciated in July but at a lower rate compared to the economic brands.
Winners included the BMW i3 which was up 9% and BWM 3-series which had a 5.2% increase. Losers were BMW M-Series models which increased less than 2% on average. The large variance hints at the segmentation of BMW being attractive to both high-end buyers and economy buyers.
BMW i3 +9% July 2021 Price Change
BMW i3 had an average price of $19,200 in June and increased up to $21,000 in July. We are seeing electric vehicles seeing an increase in demand, but the i3 depreciated quite a bit pre-Covid and they're now rebounding more than average. The MSRP for an i3 was in the mid $44,700 for the most appreciated models, which still represents 52% depreciation over its MSRP.
If you have a BMW i3 and have considered selling it, this may be a great time to sell it.
VW Hybrids +6% July 2021 Price Change
The Volkswagen e-Golf and Volkswagen Jetta Hybrid increased 6% on average in July. We have seen this trend of increased demand for electric and hybrid vehicles, likely due to increasing gas prices. In the past, these vehicles depreciated at a faster rate than their ICE counterparts, so these vehicles are seeing a rebound of the higher depreciation as well.
BMW M-Series +2% July 2021 Price Change
The BMW M-Series on average appreciated 1.8% in July, or an average of $971. Like the other models, the entry level M2 appreciated the most, at 5%, and the higher end M5 and M6 actually depreciated -1%.
Luxury Models Appreciated the Least
These models appreciated an average of 3% in July 2021
It is common to see high-end cars depreciate more than average, and that trend continues with appreciation of valuation in July.
The luxury models we evaluated included Cadillac, Land Rover, Mercedes-Benz, Porsche, and Tesla. At the model level, some vehicles were near-luxury and were labeled as such, but if they had more luxury models, the weighted definition of the segmentation pushed these brands into the luxury category.
Cadillac Sedans Up 4.78%
The Cadillac CTS, ATS were up on average 7% in July, leading the premium luxury models. These were generally older models that had depreciated on average 46%, and were rebounding from these lower levels.
Mercedes-Benz High End Cars Lose Value
High end Mercedes-Benz models such as the AMG GL63 dropped almost 3% in July. Other AMG models like the AMG C 450 dropped 1.5%, and other C-class models dropped 1% on average. What is interesting is that the C-class models are entry level vehicles, and the larger market for entry level vehicles has shown continued positive momentum.
Business Vehicles Up 4.6%
These vehicles are generally used for industrial work, such as construction or logistics. We can break them down into two types:
- Pickup trucks: 5.01%
- Vans: +4.43%
The heavy duty pickup trucks like the Chevrolet Silverado 2500 and GMC Sierra 3500 were up 6%+ in July. In the vans category, Nissan NV200, and the Mercedes-Benz Sprinter vans were up over 7%. The more popular Ford F-series did not increase as much, which hints at a supply issue, since used Ford F-series vehicles have more supply (also a much larger customer base).
We have always felt that the traditional used car depreciation model is wrong in the digital age. The 2020-2021 Covid crisis has shown many people how inaccurately depreciation works. With connected car technology, it is possible to more accurate methods to value a vehicle.
Our models are showing that certain vehicles were mis-priced and now as they return to 'normal' conditions, what happens to the valuations? Should those vehicles drop in value, what about the loans? Will many consumers be upside down in their loans?
These questions are what our models are looking to answer next.
We have been monitoring the used car market for over two years and have been building our models that look at not just the macroeconomic factors, but our connected car algorithms can drill down into how an actual vehicle is driven - all without the need for any additional hardware.
By taking hundreds of gigabytes of data, we can price cars out based on things such as:
- engine/ battery condition
- maintenance history*
- engine load / speed profiles
- and many other parameters
*maintenance data automated for certain vehicles
These data points are put into our models with an allowance of 1,000 miles/month to the age of a vehicle and then trained. We remove any outliers, and adjust for regions. Our models are specific to each manufacturer as well and to give us high confidence in our models.
The addition of connected car data helps us dig deeper and get a more accurate value, which you can sign up for if you have a compatible car.