Used Car Prices Fall Most Since Pre-Pandemic

Demand Recovering for New Cars, Forcing Dealers to Drop Used Prices
Used cars for sale
Used cars for sale at Big Motoring World's showroom near Chatham, U.K. (Chris Ratcliffe/Bloomberg News)

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Used car prices in the U.S. fell 4.2% in June, their biggest monthly drop since the early days of the pandemic, as a key measure of inflation eases.

Rising interest rates and bigger discounts on new cars are sapping demand for used vehicles, which is lowering the prices they fetch at auctions dealers use to buy and sell previously owned vehicles. Pricing also is taking a hit because dealers have almost fully replenished inventory on used car lots that were depleted by shutdowns and supply shortages during the pandemic.

“Buyers at auction look to have taken an early summer break,” said Chris Frey, senior manager of economic and industry insights for Cox Automotive, owner of Manheim, the largest auto auction. “While used retail inventory has been improving over the last several weeks, we are expecting less volatility in wholesale price movements through year-end.”

Used car prices have been a key driver of core inflation, which strips out food and energy prices. Core inflation has been especially sticky this year, even as the headline inflation rate has fallen. Overall, consumer spending on vehicles — new, used and car parts — is up 10% from a year ago, Cox said. The Bureau of Labor Statistics will release its next monthly report on consumer prices on July 12.

Chart of used car prices

via Bloomberg News

“We are not tipping into a recession,” Jonathan Smoke, Cox chief economist, said in a briefing with the media July 10. “The consumer is hanging in there.”

Smoke said the risk of recession remains elevated but it’s more likely to occur in the first three quarters of next year, depending on how much tightening the Federal Reserve pursues by pushing up interest rates.

Manheim now expects a 1.1% decline in its used vehicle price index in December, down from a previous forecast of a 4.2% year-over-year decline.

— With assistance from Chris Middleton.

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