A salesperson walks past a used Toyota Motor vehicle at the Brent Brown Toyota dealership in Orem, Utah, Monday, April 6, 2020.
George Frey Bloomberg via Getty Images
DETROIT – Used vehicle prices are expected to decline this year amid rising interest rates and the availability of new cars and trucks, according to Cox Automotive.
The automotive data firm expects wholesale prices in the Manheim Used Vehicle Value Index, which tracks the price of used vehicles sold at US wholesale auctions, to end the year down 4.3% from December 2022.
“New supply remains tight, but it’s improving rapidly. As new supply increases demand for us is down,” Cox Automotive chief economist Jonathan Smoke said Friday.
The decline is expected to be a 14.9% drop from last year’s rise in prices during the coronavirus pandemic, as the availability of new vehicles reached a record high due to supply chain and parts problems that disrupted vehicle production.
The falling rates are good news for the Biden administration, which a year ago blamed much of the country’s rising inflation on the used vehicle market.
However, it’s 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 various months in that time frame, the index experienced significant year-on-year gains of between 15% and 54%.
Frey expects weakness in the index through at least the first quarter of this year before some seasonal increases, but overall less volatility than in the new year. The Manheim Used Vehicle Value Index rose less than 1% from November to December.
“We don’t expect the monthly decline to match the increase on the slopes, although there will be some tough sledding from time to time,” Frey said, adding that the company is closely monitoring the impact of higher interest rates on car buyers.
Frey stressed that it is a “good sign” economically that prices are falling, making vehicles more affordable even as interest rates rise.
Retail prices for consumers usually follow changes in wholesale prices. That’s a win for potential car buyers, however, it’s not good for dealers who bought vehicles at a record high and now try to sell them at a profit.
Retail prices have so far not fallen as fast as wholesale prices, as traders try to keep prices as high as possible. According to the latest data, Cox reported the average listing price of a used vehicle was $27,156 through November, down only 2% from a year earlier but the lowest since last spring.
Cox estimated that retail sales of used vehicles declined 7% from November to December and were down 10% from a year earlier for the second consecutive month.