Used car prices are falling, but not enough to offset record highs

A salesman walks past used Toyota Motor vehicles at a Toyota Brent Brown dealership in Orem, Utah on Monday, April 6, 2020.

George Frey | Bloomberg via Getty Images

DETROIT. Used car prices are expected to continue declining this year as interest rates rise and availability of new cars and trucks increases. Cox Automotive.

The automotive data company expects wholesale prices in the Manheim Used Car Value Index, which tracks the prices of used cars sold at its U.S. wholesale auctions, to be down 4.3% by the end of the year compared to December 2022.

“The new supply remains limited, but it is improving rapidly. As the supply of new vehicles improves, the demand for us decreases,” Jonathan Smoak, chief economist at Cox Automotive, said Monday.

The decline is expected to follow a whopping 14.9% price drop last year due to inflated prices during the coronavirus pandemic as new car availability hit an all-time low due to supply chain and parts issues that interrupted car production.

The rate cut is good news for the Biden administration, which a year ago blamed much of the country’s rising inflation on the used-car market.

However, according to Chris Frey, senior manager of economic and industry research at Cox Automotive, they are still not enough to offset the 88% increase in index prices from April 2020 to January 2022. In different months of this period, the index increased significantly compared to the previous year, from 15% to 54%.

Frei expects the index to decline for at least the first quarter of this year before some seasonal gains, but generally less volatility than in recent years. The Manheim Used Car Value Index increased by less than 1% from November to December.

“We don’t expect a major monthly decline to compete with a rise on the slopes, although there could be some tough drops from time to time,” Frey said, adding that the company is closely monitoring the impact of higher interest rates on car buyers.

Frey stressed that the price cut is a “good sign” from an economic point of view, making cars more affordable despite rising interest rates.

Retail prices for consumers traditionally follow wholesale prices. That’s a win for potential car buyers, but it’s not good for dealers who have bought cars at record highs and are now trying to sell them at a profit.

Retail prices have so far not fallen as fast as wholesale prices as dealers struggle to maintain record high prices. According to the most recent data, Cox reports that the average listing price of a used car was $27,156 through November, down just 2% from a year earlier, but the lowest since last spring.

Cox estimates that used car retail sales are down 7% from November to December and are down 10% year-over-year for the second month in a row.

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