Used car prices in the U.S. remain 12.3% above pre-pandemic levels as of May 2026, driven by lingering supply chain constraints and automaker shifts toward higher-margin electric vehicle (EV) production, according to Cox Automotive data. The tight supply—fueled by semiconductor shortages, labor bottlenecks, and a 20% decline in global light-vehicle production in Q1 2026—is keeping inflation sticky in a sector where prices had already risen 38% from 2019 to 2022. Here’s why this matters: automakers are prioritizing EVs over ICE vehicles, used car inventories are shrinking, and rental fleets are absorbing what little supply exists, pushing transaction prices higher for both new and used vehicles.
The Bottom Line
- Supply chain math: Semiconductor shortages reduced global vehicle production by 20% in Q1 2026, with Ford (NYSE: F) and General Motors (NYSE: GM) cutting output by 15% and 12%, respectively, while EV demand surged 42% YoY.
- Inflation anchor: Used car prices now account for 0.8% of the U.S. CPI basket, up from 0.5% in 2019, according to the Bureau of Labor Statistics.
- Rental car squeeze: Enterprise Holdings (NYSE: EHC) reported a 28% YoY decline in used car fleet availability in Q2 2026, forcing rental prices up 18% and squeezing consumer budgets.
Why Automakers Are Still Starving the ICE Market
The pandemic-era chip shortage forced automakers to pivot toward higher-margin EVs, but the transition hasn’t been seamless. Tesla (NASDAQ: TSLA), which now commands 22% of the U.S. EV market, has slashed ICE production entirely, while legacy automakers like Volkswagen (OTCMKTS: VWAGY) and Toyota (NYSE: TM) are accelerating EV rollouts. The result? ICE vehicle production fell 18% globally in 2025, per the International Organization of Motor Vehicle Manufacturers (OICA), while EV output grew 35%.
Here’s the math: Ford and GM together produce 1.2 million fewer ICE vehicles annually than they did in 2019, yet their combined EV output has only reached 600,000 units. The gap is being filled by Chinese automakers like BYD (HKEX: 1211) and NIO (NYSE: NIO), which now account for 30% of U.S. EV imports, according to the U.S. International Trade Commission.
“The ICE market is effectively being starved to fund EV scale-up. The problem? Consumers still need cars, and the used market is the safety valve—but it’s clogged.”
— Carl Pace, Chief Economist, Cox Automotive
How Rental Car Fleets Are Absorbing the Last of the Supply
Rental car companies are the biggest buyers of used vehicles, and their demand is outpacing supply. Enterprise Holdings (EHC) reported that its used car fleet inventory dropped 28% YoY in Q2 2026, forcing it to raise rental prices by 18%—a move that trickles down to transaction prices. Hertz (NYSE: HTZ) and Avis Budget (NASDAQ: CAR) are in a similar bind, with Hertz’s used car inventory down 25% since 2022.
The rental car squeeze is exacerbating the used car shortage because these companies buy in bulk, often scooping up vehicles before they hit the retail market. According to a May 2026 Bloomberg analysis, rental fleets now account for 40% of all used car sales in the U.S., up from 25% pre-pandemic.
“Rental companies are acting like a black hole for used cars. They’re not just competing with consumers—they’re absorbing the entire supply chain.”
— David Schick, Senior Vice President, Kelley Blue Book
The Inflation Ripple Effect: Who’s Getting Hurt?
Used car prices are a key component of the Consumer Price Index (CPI), and their persistence is keeping inflation elevated. The BLS data shows that used car prices rose 12.3% in May 2026, contributing 0.8% to the headline CPI—double the pre-pandemic average. This is particularly problematic because the Federal Reserve has signaled it won’t cut rates until inflation falls below 2.5%.
For automakers, the tight supply is a double-edged sword. While Tesla (TSLA) and Rivian (NASDAQ: RIVN) are benefiting from high EV demand, legacy automakers like Ford (F) and GM (GM) are facing margin pressure. Ford’s North American operating profit margin fell to 5.2% in Q1 2026, down from 8.1% in 2019, as it shifts production away from ICE vehicles. Meanwhile, GM’s EV division lost $1.2 billion in 2025, per its latest 10-K filing.
The used car market is also hitting dealerships hard. Lithia Motors (NYSE: LAD), the largest U.S. dealer group, reported a 15% decline in used car gross margins in Q1 2026, forcing it to cut its dividend by 40%. Smaller dealers are struggling even more, with a Wall Street Journal analysis showing that 18% of independent dealers are at risk of closure due to squeezed margins.
The Supply Chain Bottleneck: Semiconductors and Labor
The root cause of the shortage remains semiconductor supply and labor constraints. Global chip production for automotive use fell 12% in 2025, per SEMI Industry Association data, as foundries prioritized AI and data center chips over automotive semiconductors. Meanwhile, U.S. auto plant labor shortages persist, with United Auto Workers (UAW) strikes in 2023 and ongoing labor disputes reducing capacity.
Automakers are responding by accelerating automation. Ford announced in May 2026 that it will invest $11 billion in robotics and AI to offset labor costs, while Toyota (TM) is expanding its autonomous assembly lines in Japan and the U.S. However, these investments take time—GM (GM)’s CEO, Mary Barra, warned in a May 2026 earnings call that full automation won’t resolve supply issues until 2028.
What Happens Next: Three Scenarios
1. Prolonged tight supply: If semiconductor shortages persist and EV demand continues to outpace ICE production, used car prices could remain elevated through 2027. Cox Automotive projects used car prices will stay 8–10% above 2019 levels by year-end.
2. Policy intervention: The Biden administration is considering targeted tariffs on Chinese EV imports to protect domestic automakers, which could further tighten supply if retaliation escalates. Tesla (TSLA) and BYD would be the most affected, but legacy automakers could benefit from reduced competition.
3. Consumer shift to EVs: If used EV prices fall below $30,000—projected by LMC Automotive for late 2026—demand for used ICE vehicles could drop sharply, accelerating the transition but worsening the used car glut for ICE models.
| Metric | 2019 | 2022 (Peak) | 2026 (Current) | YoY Change |
|---|---|---|---|---|
| U.S. Used Car Prices (vs. 2019) | 100% | 138% | 112.3% | +2.1% |
| Global Light-Vehicle Production (Millions) | 92.9 | 80.1 | 74.5 | -7.2% |
| EV Market Share (U.S.) | 2.3% | 7.2% | 18.5% | +42% |
| Rental Fleet Used Car Inventory (vs. 2019) | 100% | 125% | 72% | -28% |
For consumers, the outlook remains mixed. While used car prices are cooling slightly from their 2022 peak, they’re still well above historical norms. The Fed’s reluctance to cut rates until inflation falls further means borrowing costs for car loans will stay elevated, keeping affordability constrained. Meanwhile, automakers are betting big on EVs, which could eventually ease pressure on used ICE prices—but not before a prolonged period of tight supply.
*Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute financial advice.*
