Used-Car Prices Tumble in Largest Drop Since the Pandemic

Used car lot in Wexford, Pa., on Sept. 29, 2022. (Gene J. Puskar/AP Photo)

Wholesale used-car prices tumbled for a third straight month in June, in the largest drop since the start of the pandemic in 2020.

Prices in that sector, dropped by 4.2 percent from May to June, according to a  Cox Automotive’s Mannheim Used Vehicle Value Index (MUVVI), a measurement of wholesale prices of used vehicles, fell 10.3 percent year over year in June.

It tracks wholesale prices of used cars sold at auction and typically predicts future prices month in advance.

“End-of-year expectations for the Manheim Used Vehicle Value Index [which tracks car prices] have been downwardly revised, mainly based on the decreases already seen year to date,” the report noted.

“Instead of being up 1.6 percent, Cox Automotive now forecasts the [index] will be down 1.1 percent year over year in December.”

The latest data are another sign that inflation may be easing, as used-car prices were a sign of out of control inflation during the past few years.

Market Remains Volatile, Says Cox Automotive

Although used vehicle prices are down, their month-over-month trajectory remains volatile, and analysts had been expecting auto prices to show signs of easing in June.

“The wholesale market story for the first half of 2023 can be summed up in one word: volatile,” said Cox Automotive chief economist Jonathan Smoke.

“The result, however, is not unexpected. Larger upswings during the first quarter and a downward trajectory that began in the second half of March have brought us to roughly where we expected to be at this point in the year.”

“The good news is that the worst of this is likely behind us. Used retail sales held steady in June and are showing signs of strengthening—inventory levels are generally balanced between supply and demand,” added Mr. Smoke.

The Manheim report noted that the decline in prices for June was a record for the month and was “slightly impacted” by the seasonal adjustment.

Used-vehicle prices have skyrocketed since the pandemic due to inflation and supply-chain challenges, which caused temporary slowdowns in auto production.

From January 2021 to January 2022, for example, used-car and -truck prices rose an average of 40.5 percent, according to the Bureau of Labor Statistics (BLS).

The average price of a used car before the pandemic was $19,827, and by May 2023, the price was at $26,686, a 35 percent increase,  Cox Automotive noted.

The Associated Press separately reported that the average price of a used vehicle rose 40 percent, to about $29,000, between early 2020 and May of this year.

Car Buyers Expected to See Lower Prices by the Summer

Right now, the outlook for both new and used cars and trucks looks promising.

Auto buyers may finally see more positive news in summer 2023, as global supply chains begin to stabilize, which is moving vehicles and auto part production at a faster pace into the third quarter, the Manheim Report said.

“The 4.2 percent drop is among the largest declines in MUVVI history and the largest decline since the start of the pandemic in April 2020 when the index plunged 11.4 percent,” Chris Frey, senior manager of economic and industry insights for Cox Automotive, said in a statement.

“The year-over-year decline was also large, another 2.7 percent drop from May’s annualized 7.6 percent decline, but as mentioned last month, auction prices were lower in the fall last year, and we expect these increasing year-over-year moves to shrink in the months ahead as the market normalizes,” he added.

However, compared to the same month last year, the costs for light trucks like pickups and vans saw lower declines compared to the industry as a whole, at 6.6 percent and 8.5 percent, respectively.

Sports cars saw the largest drop, falling 14.8 percent in prices compared to last year, while both compact cars and midsize cars dropped by 6.6 and 6.7 percent, respectively, in the same period.

“Buyers at auction look to have taken an early summer break, and while used retail inventory has been improving over the last several weeks, we are expecting less volatility in wholesale price movements through year-end,” Mr. Frey said.

The MUVVI report also found that used-vehicle retail sales in June fell 4 percent compared to May, but are estimated to be down by 6 percent compared to June 2022.

“If you go back a year ago, all I got were emails from them [auto sellers] trying to buy my used cars. Now I’m getting ads for getting new cars from them. Discounts are coming back,” Peter Tchir, macro strategy head at Academy Securities, told Yahoo Finance.

Consumers should see vehicle prices improve as supply-chain issues ease, while demand for used cars and trucks remains relatively low.

Inflation Fears May Ease Due to Lower Used-Car Prices

Meanwhile, the June report is raising the expectation that Consumer Price Index (CPI) will show further signs of easing this week.

The decline in used auto prices may ease worries over high inflation in core categories like food and energy ahead of the July 12 release of the BLS’s monthly CPI report for June.

The auto sector reaccelerated in May and April after contracting for months.

CPI, excluding food and energy, rose 0.4 percent in May, because of increases in housing costs, followed by used cars and trucks.

The CPI report is expected to show prices rising 3.1 percent annually in June, which would be a 0.3 percent increase from the previous month.