A sign reads “We Buy Used Cars!!” at a dealership on February 15, 2023 in Glendale, California.
Mario Tama | Getty Images
DETROIT — Wholesale used car prices hit their lowest level for the year in May as sales fell due to high interest rates and inflated retail prices.
Cox Automotive on Wednesday reported a 2.7% decline in its Manheim Used Vehicle Value Index from April to May to 224.5. It marks the second consecutive monthly decline and the index’s lowest level since December’s 219.3.
The index, which tracks vehicles sold at US wholesale dealer auctions, remains at historic levels but is likely to fall further this year as rising new car inventories and high interest rates seem to put consumers off.
“Looking longer, the May year-on-year decline accelerated from April and March. However, the decline could slow over the next few months as we encounter lower auction prices from May through November last year,” said Chris Frey, Cox’s senior manager of economic and industry insights, in a release.
Cox reports that used car retail sales fell 11% year over year in May. The significant drop comes as many Americans, particularly those with lower credit ratings, are being pushed out of the market and repairing their vehicles rather than replacing them.
According to Cox, declining sales and wholesale prices signal that the used car market is weakening. Not good for US auto dealers, but a victory for the Federal Reserve’s fight to stem inflation by raising interest rates.
Used car prices have increasingly become a barometer of inflation since early last year, when the Biden administration blamed the market for rising inflation rates.
Used car prices have been elevated since the early days of the coronavirus pandemic as the global health crisis coupled with supply chain issues led to sporadic shutdowns in new vehicle production. With robust demand, this led to a low supply of new vehicles and record high prices. The cost and scarcity of inventory prompted consumers to turn to the used car market, which also drove up prices.
Continued declines could help lower used car prices for consumers as retail prices traditionally follow changes in wholesale prices. However, that has not been the case so far as the average retail price for a used vehicle has risen 0.8% over the last four weeks, reports Cox.
Cox reports that the average listing price of a used car in April was $26,969, according to the latest available data.