Wholesale prices for used cars fall as sales weaken
A sign reads “We buy used cars!!” at a car dealership on February 15, 2023 in Glendale, California.
Mario Tama | Getty Images
DETROIT – Wholesale prices for used cars hit their lowest level of the year in May as sales fell due to high interest rates and high retail prices.
Cox Automotive on Wednesday reported a 2.7% decline from April to May in the Manheim Used Vehicle Value Index to 224.5. It marks the second consecutive monthly decline and the index’s lowest level since 219.3 in December.
The index, which tracks cars sold at its U.S. wholesale auctions, remains high from historic levels but is expected to continue falling this year due to improved new vehicle inventory levels and high interest rates that appear to be spooking consumers.
“Looking at the longer term, maize’s year-on-year decline accelerated from April and March; however, the decline may slow over the next few months as we face the lower prices seen at auction from May to November last year,” said Chris Frey, senior director of financial and industry insights at Cox, in a release.
Pre-owned retail sales are estimated to have been down 11% year over year in May, Cox reports. The notable decline comes as many Americans, especially those with lower credit ratings, are being priced out of the market and repairing their vehicles instead of replacing them.
The decline in sales and wholesale prices signals that the used car market is weakening, according to Cox. That’s not good for American car dealers, but a victory for the Federal Reserve’s battle to reduce inflation by raising interest rates.
Used vehicle prices have increasingly become a barometer of inflation since early last year when the Biden administration blamed the market for rising inflation rates.
Used vehicle prices have been high since the early days of the coronavirus pandemic, as the global health crisis combined with supply chain problems caused new vehicle production to sporadically idle. This led to a low supply of new vehicles and record high prices amid resilient demand. The cost and scarcity of inventory drove consumers to the used car market, driving up those prices as well.
Continued decline can help bring used car prices down for consumers, since retail prices traditionally follow changes in wholesale prices. However, that hasn’t been the case so far, as the average retail price for a used vehicle has moved 0.8% higher over the past four weeks, Cox reports.
Cox reports that the average price of a used vehicle was $26,969 in April, the most recent data available.
