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Jim Cramer says falling used car prices suggest lower inflation

CNBC’s Jim Cramer said Thursday that while the headwind facing the used car market makes it unsuitable for investment, its declining performance is also an indication that inflation may be declining.

“When everyone was freaking out about the CPI at 8.5% — that’s a hot number — you might have noticed that used car and truck prices were down 3.8% from the previous month,” he said.

“While this is bad news for the used car industry, it could be a great sign for the economy as a whole because it means we are finally making some progress in curbing inflation,” he added.

The Mad Money host’s comments come after CarMax reported higher-than-expected revenue but missed out on earnings in the latest quarter. JPMorgan downgraded the stock due to concerns about how car affordability could impact CarMax’s performance.

“We are finally seeing what is known as demand destruction. People just don’t want to buy that many used cars if they have to pay that much… After all, used car prices can’t go up like this forever,” Cramer said of CarMax’s quarterly results.

He added that while now is not the best time to own used cars, he has one option he can offer to investors who still want to try their luck.

“If you insist on playing the game with a used car, I say go with Lithia… I think this is not the right time for this either, but if you don’t agree with me, Lithia is what you need” – he said.

He also said he has some confidence in used and new car dealerships including AutoNation, Sonic Automotive, Group 1 Automotive and Asbury Automotive.

“They are benefiting from the resumption of deliveries of new vehicles as automakers finally get their supply chains in order. More importantly, these dealerships are actually profitable and their inventory is pretty reasonable. However, to be honest, they are so cheap that you should be worried that the ratings should be lowered,” he said.

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