June saw a significant decrease in used auto prices, marking the third straight month of price drops. Wholesale used vehicle prices fell by a record 4.2% from the previous month, according to Manheim Market Insights. The Manheim Used Vehicle Value Index, a measure closely watched by industry analysts, revealed a 10.3% year-on-year plunge in June. Used vehicle prices have seen an increase over the last couple of years due to inflation and supply chain challenges which led to temporary lapses in auto production. The average price of a used auto was $19,827 before the pandemic, compared to $26,686 in May 2023 – showing a significant 35% difference as reported by Cox Automotive.
Signs of Easing Inflation
This consistent decline in prices is expected to contribute to signs of easing in the Consumer Price Index (CPI) report due on Wednesday, potentially easing concerns of sticky inflation in major categories outside of food and energy. The auto sector had seen a reacceleration in May and April following previous months of contraction. The CPI is projected to reveal a 3.1% annual increase in prices for June, marking a slight 0.3% increase from May. Used vehicle prices are down 4.2% year over year, but their month-to-month trajectory has been somewhat volatile.
The Role of New Vehicles and Interest Rates
Economists at Manheim-owned Cox Automotive identify the increasing availability of new vehicles and rising interest rates as major factors behind this decline. The retail used vehicle market remains robust but was estimated to be down by 6% in June 2023 compared to the same month in the previous year. “We are now at a turning point where the market returns to more balance, and that balanced market is likely to deliver small but predictable changes in sales and less news about big changes in prices,” stated Jonathan Smoke, Cox senior economist.
Forecast for the Used Vehicle Market
Cox Automotive expects wholesale used vehicle prices to be down by roughly 1.1% at the end of this year compared to December 2022, showing resilience in pricing and demand. For comparison, the average price of a used car last December was $29,533. However, the transition from wholesale to retail pricing doesn’t always translate into immediate savings for the consumer. “Dealers don’t have to pass it on. They can make bigger profits,” said Claudia Sahm, a former Federal Reserve banker and founder of Sahm Consulting. In essence, the decision to pass on a price increase or decrease is ultimately up to the businesses in our capitalist economy. Cox doesn’t predict another significant wholesale month-to-month drop for the rest of the year but does believe that used prices will eventually slide back to early 2020 levels for wholesale buyers… by 2028.
In summary, this ongoing decline in used vehicle prices points towards a stabilization of the used car market. While there’s still uncertainty about whether these price drops will be passed on to consumers, there are clear signs that the inflation and supply chain issues that have been driving prices up are starting to ease.