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

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

George Frei | Bloomberg via Getty Images

DETROIT – Used vehicle prices are expected to fall further this year due to rising interest rates and improved availability of new cars and trucks, according to Cok Automotive.

The auto data company expects wholesale prices on the Mannheim Used Vehicle Value Index, which tracks the prices of used vehicles sold at wholesale auctions in the U.S., to end the year 4.3 percent lower than in December 2022.

“New supply remains tight but is improving rapidly. As new supply improves, demand for us is falling,” Cox Automotive Chief Economist Jonathan Smoke said Monday.

The decline is expected to follow a staggering 14.9% drop last year due to inflated prices during the coronavirus pandemic, as new vehicle availability hit a record low due to supply chain issues and parts that stopped vehicle production.

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

However, they are still not enough to offset the 88% increase in index prices from April 2020 to January 2022, according to Chris Frey, senior manager of economic and industry insights at Coke Automotive. For various months in that time frame, the index experienced significant year-over-year increases of between 15% and 54%.

Frey expects the index to soften through at least the first quarter of this year before some seasonal increases, but overall less volatility than in recent years. The value index for used vehicles in Mannheim rose by less than 1% from November to December.

“We don’t expect big monthly declines to rival increases on the tracks, although there could be some heavy sledding from time to time,” Frey said, adding that the company is closely monitoring the impact of higher interest rates on car buyers.

Car dealers increase their profits because the low supply of vehicles causes buyers to pay the sticker price

Frey stressed that it is a “good sign” economically that prices are falling, making vehicles more affordable despite rising interest rates.

Retail prices for consumers traditionally follow changes in wholesale prices. That’s a win for potential car buyers, but not great for dealers who bought vehicles at record prices and are now trying to sell them at a profit.

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

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

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