By Christopher Otts

Used-vehicle shoppers are finding stubbornly high prices at the dealership lot -- if they can find a car at all.

Used-car and truck prices rose 2.2% from December to January, while new-car prices were flat, according to the Labor Department. It was a significant factor keeping overall inflation stuck at 3%, raising questions this week about whether the Federal Reserve will cut interest rates this year.

Prices on both new and used vehicles have come down from their 2022 peak, when vehicles were in short supply because of supply-chain problems. The inflation was more pronounced on used cars, though, and they remain pricier than they had been before the pandemic relative to new vehicles.

Car dealers and analysts say higher used-car prices will stick for a while. A number of factors are depressing inventory on preowned vehicle lots, likely extending a seller's market.

"It is hard to find used cars," Pete DeLongchamps, senior vice president at Group 1 Automotive -- one of the U.S.'s biggest car dealer groups -- said at a Detroit conference this month. "It is gonna be like that for the next two years."

A big part of the problem traces back to the pandemic-era vehicle shortages. Three years ago, carmakers pulled way back on lease deals in favor of outright purchases, which generally are more profitable. Now there is a hangover effect: a shrinking pool of leased cars being turned in at the end of their terms, a main source of supply for used-car lots.

The number of vehicles coming back to dealers with expiring three-year leases will drop 23% this year, to a decade low, according to Cox Automotive. It isn't expected to bounce back until 2027, forecasts show.

"It is a massive contraction of that key segment of vehicles that gets put into the used-car marketplace," said Jeremy Robb, a Cox analyst who follows the used market.

Another factor contributing to tighter supplies: Lease customers are less likely to return their vehicles at the end of their term, Robb said. With used-car prices remaining sticky, the predetermined price to simply purchase the vehicle at the end of the lease is often a good deal relative to its market value.

The supply pinch has kept prices elevated. The average price of a three-year-old used car sold wholesale was nearly $28,000 in early February, up 45% from the same time in 2020, according to Cox data. The average price consumers paid for new cars rose 25% over that span, to $48,641.

New vehicles are widely available now that factories are humming again. Dealers had a 63-day supply of new cars on their lots or in transit to stores at the end of January, up from 26 days at the same time in 2022, according to research firm Wards Intelligence.

Meanwhile, used-car supply has tightened over the same period, to 48 days from 57 days, according to Cox.

Thin stocks and higher prices for preowned cars have coincided with higher interest rates and auto-insurance premiums, making it harder for consumers to afford the monthly costs associated with vehicle ownership.

Many consumers are opting to keep their older car longer instead of looking for an upgrade, said Tom Maoli, owner of Celebrity Motor Car, a dealership group based in New Jersey. "They are spending more money on repairs, but their monthly payments are less," he said.

Dealers have had to work harder, and in some cases pay more, to get used cars for their lots. Three-year-old cars are the lifeblood of so-called certified-pre-owned programs, in which manufacturers offer warranties and other assurances on used vehicles.

For AutoNation, a publicly traded dealer group, used-car supply "has continued to be a challenge," particularly for more-expensive models, Chief Executive Michael Manley told analysts Tuesday.

One upshot for used-car shoppers who are trading in an old ride: They might get paid more.

Group 1's DeLongchamps said earlier this month that his company's dealerships have wide latitude in their offers for trade-in cars so they can restock their preowned lots.

"We would much rather overpay for a trade with a customer that we do business with every day," he said.

Write to Christopher Otts at christopher.otts@wsj.com

(END) Dow Jones Newswires

February 15, 2025 10:00 ET (15:00 GMT)

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