Inventory flip-flop

The post-COVID narrative has largely been one of stable used supply and tight new vehicle inventory, but this summer, that narrative has flipped. Used inventory levels declined again in August and are now down 2% year-over-year (YoY) and 7.4% below August 2022 levels. Meanwhile, new vehicle lots continue to swell ever fuller with August readings up 2.9% month-over-month (MoM), 55.1% YoY, and up an eye-watering 193.3% compared to this time in August 2022.

Interestingly, despite the shift in inventory levels, both new and used listings saw a MoM decline in days-on-market, albeit for different reasons. For used, levels were down both MoM and YoY as vehicle turnover and fresh vehicles coming onto lots helped to lower days-on-market. For new, the 1.4% drop in August readings MoM was due to an influx of fresh 2025 production in the month; however, YoY levels were up 29.5% as production continued to recover while consumers are becoming pickier.

Consumer demand for affordable vehicles remains robust

Preliminary sales data suggests that used vehicles were in high demand in August, with the CarGurus Vehicle Demand Index rising 5.6% MoM and 7.4% YoY, reaching the highest reading overall since March 2022. What led to this jump in used vehicle sales? There seems to be a strong demand for affordable vehicles. Used vehicles priced under $20k saw a 25.4% YoY increase in demand, while those priced $20 - $30k saw a 13.1% increase. However, vehicles priced over $30k saw a YoY decrease of 0.8%, highlighting how concerns about affordability are driving consumers toward more inexpensive options.

What about interest rates-will a rate cut help to spur further demand? While a rate cut is welcome, we anticipate it will have a limited impact on affordability and vehicle demand. With used interest rates hovering between 15-16%, this anticipated cut (between 25 and 50 bps) would equate to a $3 - $7 in monthly savings on the purchase of an average used car today.

Alternative powertrain listings increasing in share

While the amount of attention spent on electric vehicles (EVs) far outpaces their sales volume, there's no doubt that the shift in powertrains from internal combustion engine (ICE) to alternative options is well underway. In fact, for dealer inventory, new ICE vehicles have quickly fallen to just under 82% of currently available listings, a steep shift from 93.1% in August 2022. While hybrids are still the dominant alternative powertrain at over 9% of listings, EVs are quickly growing in pace with them.

For used inventory, ICE-powered vehicles remain a much higher percentage of listings, over 93%, as turning over the historical fleet is much more of a challenge with nearly 300 million vehicles in operation. Used EV listings account for under 2% of total listings, and hybrids are under 4%, limiting their potential impact on sales volume.

Other key trends:

• New vehicle demand also appears to have been strong in August, particularly toward Labor Day weekend, with the Vehicle Demand Index reading increasing 11.8% YoY.
• Data from August provided further confirmation that used EV prices seem to have found a bottom, with average prices cresting $38k, the highest level since January 2024.
• The average price of new hybrids is getting ever closer to that of ICE-powered vehicles, with average hybrid list prices coming in at $49.2k while ICE-powered vehicles came in at $48k.