Used Demand Isn’t Waiting for Tax Season

Tax season is barely underway, but that hasn’t stopped used sales demand from posting one of the strongest January readings since 2021. The CarGurus Used Vehicle Demand Index jumped 7.2% year-over-year (YoY), driven largely by buyers in the South and West. Demand may have been even stronger were it not for the arctic freeze that blanketed large parts of the country late last month.

‍

Despite the surge in demand, used inventory levels continued to rise with the CarGurus Used Availability Index increasing 5.2% YoY. Growing inventory hasn’t done much to ease prices, which averaged $27.8K in January, up 1.5% compared to a year ago. We expect prices could begin moving higher in the coming weeks as seasonal demand continues to build.

‍

New Vehicles Start 2026 in Low Gear

While the used market started the year with surprising strength, the new market tracked closely with expectations for a cooler 2026. The CarGurus New Vehicle Demand Index fell over 3% YoY, as a combination of affordability challenges, winter weather, and soft EV demand weighed on shopper activity.

‍

New vehicle inventory has stabilized after a year-long rebuild following the chip shortage. January inventory levels were actually down 2.7% YoY, suggesting that OEMs and dealers are becoming more deliberate about aligning supply with demand and margin considerations. Despite concerns about 2026 model years introducing higher prices and putting more pressure on affordability, average list prices in January were up just 0.4% YoY to $49.2K, even though about three-quarters of inventory is now 2026 models.

‍

The K-Shape Isn’t Going Anywhere

The K-shaped economy defined consumer demand in 2025, and early indicators suggest that dynamic is unlikely to change anytime soon. Consumer confidence and sentiment remain deeply disconnected from broader economic data. Consumer confidence has fallen to its lowest level since 2014, while consumer sentiment is down more than 20% from a year ago, even as economic growth continues.

‍

One reason may be that auto loan rates have yet to see substantial relief despite the Fed cutting rates by nearly 175 basis points since September 2024. Longer-term Treasury yields, such as the 2- and 5-year, which more directly influence auto loan rates, have barely moved compared to short-term rates, limiting the impact for those financing a vehicle.