Used Car Prices Soar, Highest Jump in 14 Years

Used cars are displayed at a dealership on June 10, 2022 in New York City. (Spencer Platt/Getty Images)

Used car prices have seen the largest February increase in 14 years as inflation continues to drive consumer prices.

Wholesale used-vehicle prices increased 4.1 percent from January through the first half of this month, signifying the largest February increase since 2009’s full-month 4.4 percent gain, according to the mid-month Manheim Used Vehicle Value Index from Cox Automotive.

This comes just a month after markets were hit with a massive rise in used car prices, according to the Manheim Used Vehicle Value Index.

The used vehicle index rose to 234.0, down 7.3 percent from the entire month of February 2022, as seasonal adjustment drove a small part of the gains.

The non-adjusted price change in the first half of February rose 3.4 percent from January, while the unadjusted price was down 5.9 percent year-over-year.

The index declined 15 percent following a peak in early 2022 at around 257 but has risen 7 percent since early November.

Inflation Still a Major Concern

Inflation rates are still continuing to ease, but there is concern that the Federal Reserve’s campaign to reach an official inflation rate target of 2 percent by raising borrowing rates may cause the economy to falter in the second half of the year.

Meanwhile, news that Fed policymakers are pushing for a 50-basis-point increase at the next policy meeting in March to lower costs further is drawing considerable attention.

The price of used cars has long been used by U.S. market watchers and by the Fed as a prime benchmark for observing the rate of inflation.

One of the concerns surrounding the Fed’s disinflationary policy has been the spike in wholesale used vehicle prices.

Although the latest Consumer Price Index (CPI) report showed a slight decline in used vehicle prices, a sizable bounce is expected in this category due to a time lag over the next few months, according to analysts.

At the same time, the real-time Manheim index shows that future CPI data for the Used Cars and Trucks component will likely increase, as prices have a two-month lead.

Nationwide Auto Loan Defaults Expected to Hit Soon

Used car prices are increasing as consumer auto loans hit a new record of over $1.4 trillion, though many borrowers are beginning to falter on their loans.

The number of consumers in auto-loan debt is increasing at a time when borrowing rates on car loans are at some of their highest levels on record.

The auto-loan crisis may yet turn into a major storm as the rate of severely delinquent loans has hit levels not seen since the Great Recession.

It is feared that many people who bought cars at a time of low interest rates and pandemic-era monthly government handouts of $1,000 will face financial ruin if—or when—recession hits.

“People are not paying their car loans. Auto loans delinquent (overdue) by MORE than 60 days are now up 26.7 percent from a year ago. Not a crisis just yet but watch this trend closely,” said industry observer CarDealershipGuy in a tweet last month.