Used-vehicle values rise 6.2% in Q1 amid tax refunds, affordability demand

Used-vehicle values are up sharply in Q1 2026, and that headline is coming out of the Manheim / Cox Automotive data. Here’s the key substance behind it and the implications.

What the 6.2% increase refers to

• The Manheim Used Vehicle Value Index (MUVVI) rose 6.2% year over year through March, reaching about 215.3 – the highest level since summer 2023.

• March alone was unusually strong: values rose ~1.4% m/m on a seasonally adjusted basis, and are roughly 2.3% higher than at the start of 2026.

• Wholesale used prices are now running ahead of Cox Automotive’s original full‑year 2026 forecast (they had only projected ~2% growth).

Drivers: tax refunds and “affordability” demand

1. Bigger tax refunds = stronger Q1 demand

   • Cox’s chief economist, Jeremy Robb, explicitly attributes much of the Q1 lift to tax refund season: dealers bid up prices at auction in anticipation of, and response to, consumers coming to the lot with larger refunds to use as down payments.

   • The average federal income tax refund this season is estimated around $3,500 and up about 10–11% YoY, giving many buyers more cash capacity.

   • Tax‑refund peak is normally the high point for used-vehicle demand; Cox notes they still see “tailwind left” as many filers haven’t yet filed, suggesting support into late spring.

2. Affordability squeeze in the new‑car market pushes buyers used

   • New vehicle average transaction prices are hovering around the high‑$40Ks (roughly $49K), which is pushing “new‑car intenders” down into the used market.

   • CarGurus and others are noting that affordability concerns, including higher fuel and borrowing costs, are shifting more buyers into used cars, particularly budget segments.

   • That “flight to used” is boosting demand at the same time supply is constrained, reinforcing price pressure.

3. Tight used inventory, especially at value price points

   • Cox describes used inventory as “very tight,” with days’ supply around the mid‑30s (≈37 days) versus nearly 80 days on the new‑vehicle side.

   • Wholesale auctions are seeing high sales-conversion rates (around the high‑60% range, ~68%), well above historical norms, which is consistent with strong dealer appetite for limited units.

   • The combination of constrained supply and elevated demand is why the index is at a 2.5–3‑year high even though broader macro conditions (rates, credit) are not particularly favorable.

Where prices stand now

• MUVVI at 215.3 corresponds to a seasonally adjusted wholesale average price just under $20,000 (~$19,700).

• Retail used-vehicle prices are higher still, with some reporting average used-vehicle transaction prices in the mid‑$20Ks (≈$25K), versus just over $49K for new vehicles.

• Used-retail sales volumes in Q1 are running modestly above last year (≈2% higher), indicating demand is not just price-driven at auction but also pulling through at retail.

Implications / how to read this

For different audiences:

• Dealers / auto finance

  • Expect sustained wholesale price firmness into late spring as tax refunds continue to hit, with risk that Cox’s original 2% full-year appreciation forecast is too low if inventory doesn’t normalize.

  • Tight used supply plus strong conversion rates implies more competitive acquisition and potential margin pressure unless retail pricing can move up in tandem.

  • Lenders should assume higher collateral values in near-term LTV calculations but remain cautious about residual risk if this proves cyclical, especially in subprime.

• Consumers

  • This tax season is a “seller’s market” for used cars; deals are harder to find, and negotiation leverage is reduced because units move quickly and dealers’ floor prices are elevated by auction costs.

  • Using a larger tax refund for a down payment still helps on payment affordability, but buyers are partially “chasing” rising prices created by the same refund-driven demand.

• Macro / credit & loss modeling

  • Higher used values are near‑term supportive for recovery values and lower severity on repossessions and total‑loss insurance claims, but the fact that prices are running above prior forecasts raises mean-reversion risk in outer years.

  • Affordability-driven substitution from new to used may continue as long as new‑vehicle pricing and rates remain elevated, keeping upward pressure on used values despite softening elsewhere in consumer credit.