Used car prices fall from record high, dampening impact of inflation

A sign advertises cash payment for used cars in the Alhambra, California on January 12, 2022.

Frederick J. Brown | AFP | Getty Images

DETROIT. Wholesale prices for used cars have dropped markedly from the record high set in January, signaling that the worst of the sky-high prices associated with higher US inflation may be behind us.

Cox Automotive said on Friday that its Manheim Used Car Value Index, which tracks the prices of used cars sold at its wholesale auctions in the US, was down 1% in April compared to March, marking a third straight month of decline from the first month of the year.

“We are clearly back to cars that are depreciating again. This is good news for both inflation and consumers looking to buy a car,” Jonathan Smok, chief economist at Cox Automotive, told CNBC.

Wholesale car prices fell 6.4% from their January record. However, prices are still extremely high and the index remains 14% higher than a year ago.

The drop in prices comes as Mannheim estimates retail sales are down 13% in April from March, signaling weaker demand amid record high prices.

Automakers have been battling a shortage of semiconductor chips for over a year, which has halted production of new vehicles from time to time, leading to record low vehicle inventories and rising prices. Circumstances have pushed many buyers into the used car market.

Smoke expects used car prices to remain high but return to a “pretty normal pattern” with the potential for a slight price hike later in the year.

“It’s potentially getting a little deflationary in that regard,” Smoke said, adding that this doesn’t necessarily mean a massive price correction. “This is not a commodity market where people speculate, and used cars are assets that really benefit people.”

“Over the past two years, we have had an unusual circumstance that has stimulated demand and we have limited supply,” he said.

The decline is good news for the Biden administration, which blames much of the country’s rising inflation on the used car market. Over the past 20 years, the contribution of used cars to inflation has averaged zero. According to the US Bureau of Labor Statistics, in January it was more than 1% year on year.

Persistent inflation has caused prices to rise to historical levels over the past year. The trend was politically damaging to the Biden administration and raised fears of “stagflation,” an undesirable combination of rising prices and stagnating economic growth.

– CNBC Kevin Breuninger contributed to this report.

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