A seller leaves on Monday, April 6th.
George Frey | Bloomberg via Getty Images
DETROIT — Used car prices are likely to fall further this year as interest rates rise and improved availability of new cars and trucks, according to Cox Automotive.
The auto data company expects wholesale prices on its Manheim Used Vehicle Value Index, which tracks the prices of used vehicles sold at its U.S. wholesale auctions, to be down 4.3% for the year from December 2022.
“New supply remains scarce, but it is improving rapidly. As new supply improves, demand falls for us,” Cox Automotive chief economist Jonathan Smoke said Monday.
The drop is expected to follow a whopping 14.9% drop last year due to inflated prices during the coronavirus pandemic, as new vehicle availability hit record lows due to supply chain and parts issues that disrupted vehicle production.
The falling rates are good news for the Biden administration, which a year ago attributed much of the country’s soaring inflation rates to the used-car market.
However, they are still not enough to offset the 88% increase in index prices from April 2020 to January 2022, according to Chris Frey, senior manager of economic and industry insights at Cox Automotive. For several months during this period, the index posted significant year-over-year gains of between 15% and 54%.
Frey expects the index to weaken through at least the first quarter of this year before some seasonal increases, but overall less volatility than in recent years. The Mannheim used car value index rose by less than 1% from November to December.
“We don’t expect large monthly declines to match the increases on the slopes, although there might be some hard sledding from time to time,” Frey said, adding that the company is closely monitoring the impact of higher interest rates on auto buyers.
Frey emphasized that it is a “good sign” from an economic point of view that prices are falling and that vehicles are becoming more affordable despite interest rate increases.
Retail prices to consumers traditionally follow changes in wholesale prices. That’s a win for potential car buyers, but not great for dealers who have been buying vehicles at record highs and are now trying to sell them for a profit.
Retail prices have not fallen as fast as wholesale prices so far as traders try to keep record prices steady. According to the latest data, the average list price of a used car through November was $27,156, down just 2% year over year but the lowest since last spring.
Cox estimates that used retail sales fell 7% from November to December and are down 10% year-on-year for the second straight month.