Used-Car Retail Prices have given up only 36% of their price spike so far.
By Wolf Richter for WOLF STREET.
Used vehicle prices at auctions fell another 0.5% in December from November, seasonally adjusted; and by 2.0%, not seasonally adjusted, according to the Manheim Used Vehicle Value Index today. Manheim is the largest auto auction house in the US and a unit of Cox Automotive. Its auction venues sell about 5 million vehicles a year. The index is adjusted for changes in mix and mileage.
The index price, at $18,110, has dropped by $4,792, or by 20.9%, from the peak in May 2022. During the incomprehensibly crazy run-up of prices from February 2020 through May 2022, the index had soared by $8,842, or by 63%, to $22,902.
As of December, $4,792 or 53% of the $8,842 price spike has now vanished – a historic plunge, after a historically insane price spike.
Auction prices stall or drop when dealers who go there to replenish their inventory buy less, and are more skittish about bidding up prices, and would rather walk away empty-handed than overpaying, knowing that they’re facing pricing resistance among their own customers.
This all fell apart during the pandemic when dealers suddenly dealt with consumers that would pay anything for a used vehicle, instead of trying to drive a bargain. And dealers held their noses and cringed and bid up prices at auctions, knowing that they could still make huge amounts of money at those prices because consumers were just willing to pay whatever. And some of them even put their observations of this craziness on YouTube.
Most people could have just continued to drive what they already had for another year or two, causing demand to collapse enough to where dealers would have had the choice of either eating their inventory instead of their daily bread or cutting prices. But no, not in 2020 and 2021, when money was free and fell like manna from heaven, price didn’t matter, and dealers raked it in.
People who bought back in 2021 and 2022, are now driving vehicles whose values have plunged in a historic manner, in addition the normal depreciation.
The question on everyone’s mind is this: How much more will used vehicle prices drop before the price increases start all over again?
Inventories have been rising but are still fairly tight.
Used retail inventory has been rising off the lows in February and March 2023 but remains tight with 2.36 million vehicles at dealers at the end of November, compared to a range of 2.8 million to 3.0 million in 2019, according to estimates from Cox Automotive.
That’s one of the interesting aspects here: prices have been dropping despite fairly tight used vehicle inventories. It’s not like there’s a glut of vehicles on the market, but it looks like enough consumers have finally gone on buyers’ strike, and they’re staying on buyers’ strike, and that’s what it takes to bring prices back down.
Retail prices, as per CPI used vehicles, have also fallen by historic amounts, but not nearly as much: by 12.8% from the peak in July 2022, not seasonally adjusted, according to the CPI for December. By now, 36% of the pandemic spike has vanished.
Both the index for wholesale prices (top chart above) and the CPI for retail prices (chart below) surged during the spring 2023, much more than the normal uptick during the spring, after having tumbled through February 2023. This move, spread over only about four months, added to the astounding volatility of used vehicle prices over the past three years.
Wholesale prices have now fallen well below the lows of early 2023, but used-vehicle retail prices didn’t even yet make it to the lows of early 2023, and in November ticked up again:
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