That would be a bummer for CPI Inflation over the coming months.
By Wolf Richter for WOLF STREET.
This may be the end of the historic plunge of used-vehicle prices that has unwound about half of the historic 60% price spike during the pandemic. The price plunge, which kicked off at the end of 2021, has been a substantial force in bringing CPI inflation off its highs, and it would be a bummer if that flipped now.
Prices of used cars, SUVs, pickup trucks, and vans that were sold at auctions across the US jumped by 2.8% in July from June, seasonally adjusted, the biggest jump since the surge in early 2023, according to today’s Used Vehicle Value Index by Manheim, the largest auto auction house in the US which runs about 8 million vehicles a year through its auction lanes. The index is adjusted for changes in mix and mileage (red in the chart).
Not seasonally adjusted, wholesale prices rose by 0.6% in July from June, which is very unusual. Prices normally weaken in July after tax-refund season. During the eight years before the pandemic, prices fell on average by 0.8% in July from June. This July, they rose 0.6%.
Manheim notes the unusual price increases in July in several places, including in its index of three-year-old vehicles:
“Over the last four weeks, the Three-Year-Old Index increased an aggregate of 1.1%, including a rise of 0.5% in the last week of the month. Those same four weeks delivered an average decrease of 0.6% between 2014 and 2019, illustrating that the appreciation trend for the month of July contrasted against long-term averages.”
The year-over-year double-digit price drops in the prior months were nearly halved in July: Not-seasonally adjusted, July prices fell 5.9% from a year ago, down from the -10% to -12% range in February through June.
In our report a month ago, we asked: “The question on everyone’s mind: How much further will wholesale prices fall to work off that mindboggling spike that should have never occurred in the first place? When will they bottom out?” And the data today may have provided the answer.
Supply from off-lease vehicles has started to slow. Manheim said lease returns, a key source of supply for the used-vehicle market, are now slowing down, as fewer vehicles were leased starting three years ago, and so fewer leases are now maturing, fewer off-lease vehicles are going through the auctions, and that the slowdown in supply will drag into 2026, and that it expects this to put upward pressure on prices in that segment:
“We are just beginning to see lower lease maturities for the key 3-year-old segment, and that impact will be felt over the rest of this year and into 2025 and 2026. As supply tightens for this key segment for the used vehicle market, we expect to see variances from historical average depreciation rates.”
Inventories of used vehicles at dealers are already getting tighter; they fell to 2.21 million units in June, down roughly by 25% from June 2019, based on the latest data available from Cox Automotive, which owns Manheim. During the entire episode of the vehicle shortages, there were only five months when inventories were even lower.
Dealers buy at these auctions to replenish their used-vehicle inventories. Supply comes from rental fleets that sell some of the vehicles they pull out of service, from finance companies that sell their lease returns and repos, from corporate and government fleets, other dealers, etc.
And there was unusual demand at the auctions in July. Manheim added some detail in terms of the sales conversion rates:
“The average daily sales conversion rate rose to 60.1%, a rise of three-and-a-half points over last month and higher than we normally see at this time of year. For comparison, the daily sales conversion rate averaged 51.9% in July over the last three years.”
Prices of both EVs and ICE vehicles rose in July, not seasonally adjusted, when they should have fallen.
During the pandemic, Tesla-flipping was a phenomenon where people bought new Teslas and resold them as legally used at massive profits because used-vehicle prices in general had shot up and Tesla prices even more. It had contributed to a 145% spike in used EV prices from January 2020 through the peak of the spike in July 2022.
Then Tesla cut its own prices starting in 2022, as production ramped up, and thereby killed Tesla-flipping. And it has tried to discourage Cybertruck-flipping.
So used EV prices have been coming down off their crazy spike but remain far higher than used ICE vehicle prices and have a lot further to fall to get back into line (prices not seasonally adjusted, red = EVs, blue = ICE vehicles, data via Manheim):
The used vehicle CPI, which represents retail prices, tracks wholesale prices fairly closely but not in lockstep and tends to lag by a month or two. The Bureau of Labor Statistics will release the July CPI next week, and it may not yet show the current price developments at auctions. But if the price increases persist at auctions, they will show up in the used vehicle CPI over the next few months.
This chart is from our last CPI report with data through June. We’re now eagerly waiting for the July data:
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
Sell your second car while there are still fools with cash left.
In this economy, we have a never-ending supply of fools and an almost-as-inexhaustible supply of extra cash lying around. If something’s going to separate them, it’ll be a crowbar held by a blunt-speaking economist.
We’ve been waiting for a recession for a year now. $2T in deficit spending is WAY more buoyant for the labor market / economy than most people are letting on. The top 50% are easily making up for the slack in spending of the bottom 50%.
The CPI graph over the last year has stalled out. Until there’s a big rise in 1st time unemployment up towards 300K, then people need to stop acting like a recession is just around the corner. I really hope the Aug job report shows a nice bounce up towards 175K jobs.
Without sustained loss of jobs and continued unemployment claims above low 2M, then we’re just in the goldilocks phase which could last 12 months or more.
But don’t worry, the FED is going to lower rates in Sept no matter what. CEOs are now telling Powell to cut or else (i.e., we axe more jobs). Several more Intel level layoff announcements might do the trick.
so easy to forget that some 10,000 SKILLED WORKERS retiring every DAY.
I know my employers keep renewing their annual contracts
one even said he wanted to clone me and come to Commiefornia to manage site there
Lots of workers who lack basic SKILLS
those with solid skills making bank
ex. my son 26(no college) making $65k running crew(sup)
2 kids, sold 1st house and is now paying cash to build new one
he keeps farming out smaller jobs to one of my workers and pockets difference
If the economy is so strong, then the Fed needs to boost rates… a lot..
Jdog
“If the economy is so strong, then the Fed needs to boost rates… a lot..”
No the Fed doesn’t need to hike rates because inflation isn’t that high anymore. It’s substantially lower than the Fed’s policy rates. The Fed’s job is NOT to slow down economic growth. The Fed’s job is to slow down inflation, and inflation has slowed a lot, while the economy keeps growing at a decent (better than average) pace.
yes, but that assumes that the current rates are restrictive. if they’re merely neutral, then the fed should not be lowering simply because inflation has come down.
Be careful though,
Here in Raleigh a few years ago, there was a guy selling his nice BMW SUV. The buyer met him in an old cafeteria parking lot in a pretty busy college shopping district.
Then they basically kidnapped him, drove up towards Virginia and offed the owner selling the car. Threw his cell phone out of the window and then drove the bmw to a city in Virginia. Then put a tarp over it.
It took police a bit to crack the case, but they solved it and people were arrested.
Just sucks you can’t deal with strangers safely anymore.
Wall street will have a cow if CPI goes up and they can’t push their rate cut hype. Or even worse for wall street, a rate hike. Oh, the horror. This could be very entertaining.
and it would be a bummer if that flipped now.
Respectfully, I disagree. Anything to keep the FED from lowering rates should be celebrated. Rates are not high, not based on the 110 year average since the FED has been demolishing the purchasing power of average people. Higher rates and a stronger dollar, along with fiscal austerity (yeah a pipe dream) is the only hope.
You might want to re-read my comment. Slowly this time.
drat – you might want to get educated the FED way
hope your hourly rate keeps rising as fast as FED keeps printing new fake debt we can’t service
IMHO interest rates need to rise another 5% unless CONgress gets grip and stops spending(ROFL)
S-Show about to go viral after election
Joedid,
Are you another one incapable of reading? You might want to go back to grade school. I in no way want rate cuts. Just the opposite. Are you also incapable of identifying sarcasm? What’s wrong with you people. Unbelievable.
When I lived in my remote dwelling in AZ there were rats everywhere, very smartest and cleaver creatures these rats were.
If you wanted info on the economy, ask a rat !!
HT
You another concrete thinker responding to my comment? The comment should have been obvious to a thinking person that it was sarcasm on wall street’s obsession with rate cuts.
Eric replied to Wolf and not Desert Rat. Everyone just got confused and on the defensive from there. Sheesh!
It would certainly be a bummer for CPI and the working people, but the people who caused inflation – the FED and all the wealthy politicians and bureaucrats – could not care less. Their goal has been accomplished; create a system of grotesque inequality where they and their buddies get obscenely rich by stealing the future of the children.
The dingo ate your baby.
Dear Jim. HEE HEE
I worked with a first generation Indian immigrant who did a wonderful job leveraging his short career as a nurse by buying a 7-11. He used that first 7-11 to buy another one…then another one…then another one. Now does not work as a nurse and has a wonderful large house in a wonderful part of San Diego. What’s your excuse?
I’m doing just fine. I’m one of those rare people who doesn’t stare through the distortions of their own economic lens to assess the current state of affairs. What’s your excuse for yourself and your poor manners and wobbly critical thinking skills?
The existence of massive wealth inequality was a precursor to the marxist takeover in Venezuela, you know, to “fix it”.
Thank goodness somebody understands the big picture.
DC… So educating yourself, working hard, getting wealthy and living the american dream is now BAD?
And grimp, you know nothing about Venezuela. I travelled and did business there for many years. My family left back during the previous communist regime of the 1950’s.
What ruined Venezuela and most other latin amd third world countries is one simple thing – corrupt government officials and bureaucrats.
cccb, chicken or the egg. corrupt governments usually get their start by promising to fix structural problems. not just venezuela, but soviet russia, 1930s germany, 1950s cuba, and many others. it pays to be a student of history.
when things don’t work for a large portion of the population, as is the case in much of the western world, people crave an alternative.
the alternatives are often corrupt and self serving, as human nature dictates that the best salespeople rise to the top.
Welcome any data that will support keeping rates the same instead of a cut in Sept.. that’s if PowPow is truly data dependent and not give into crybabies wallstreet addicts..
All these data will be interesting leading into Sept.. the look in WS faces will be priceless if Sept prediction is a complete bust
Don’t new and used vehicle prices dominate the Durable Goods CPI? And hasn’t Durable Goods CPI been partially offsetting the still hot Core Services CPI?
Yes and yes. Durable goods CPI/PCE plunged the most in over two decades and were the force that drove down core CPI/PCE as services CPI/PCE remained high:
https://wolfstreet.com/2024/07/11/beneath-the-skin-of-cpi-inflation-historic-plunge-in-durable-goods-prices-plunge-in-gasoline-and-outliers-in-services/
I think the green pilot flies for southwest.
Wolf,
Wondering about your thoughts on something– CME and a lot of commodities producers look like they are starting to get oversold bounces. This along with the really sharp drop in durable goods prices seems to set up a situation where some market participants may be starting to stockpile commodities (or buying futures) in anticipation of a sharp pop.
If this thesis is correct, we may be at the beginning of another commodities/product based inflationary surge.
Do you think these data points align, or am I getting ahead of myself?
How does this compare with new car sales? Could it be consumer spending is shifting from new cars to used cars due to available disposable income?
New car unit sales are the highest since 2019. But new and used have always competed with each other to some extent.
Sounds oddly similar to the crazy real estate market.
If used car inventories are so low now, just like RE prices, used car prices probably wont go down and will in fact go up, especially now that labor and material costs for new cars are so much higher.
Like homes, people are staying out in their cars because of higher prices, financing and insurance costs
BMW prices have never gone down and have simply continued to climb in the used car auction markets such as BAT and the same is true of Ferraris,
Rolls-Royce and other cars of interest that I follow.
The stock markets were down significantly again today and will likely continue lower and yields (interest rates) will continue to rise.
the good job report caused futures to rise by 1%. good job news is good, because no recession, and bad job news is good, because the fed will have to cut 150 bps of course
Time to crank up the used car factories !
Part 2 of cash for clunkers? What a waste of perfectly fine used cars. What was that about anyways, clean up the air by destroying older smelly cars, costs 3 billion and studies found it was worse for for the environment then if left alone.
Part 2 of cash for clunkers is different, now you get top dollar for the old clunker.
Most people learn from mistakes, but the gov has new fools arriving yearly.
Yeah looking back I always think of that as a strange move.
Maybe it helped smog? I dunno
I’ll just say it helped someone, look back and see who was making money of this scam. Someone got a snack.
Probably get a program going where you give people 20 thousand to celebrate with, then after a month they need to report to the factory and be ground up for cat-nip…watch millions sign up.
Call it “cash for cat-nip”.
It was a handout to the auto lobby from the Obama administration. The catalytic converter eliminated smog.
You could probably put that last sentence on T-shirts and bumper stickers and make quite a few bucks as a side hustle!
Sorry if duplicate but I wanted to know how this compares with new car sales. Is it possible we are seeing a shift to used cars due to consumer’s reduction in disposable income?
New car unit sales are the highest since 2019. And there’s lots of new vehicle inventory. Lots of dealers are drowning in new vehicle inventory. They’re motivated to make deals.
Generally though, new and used have always competed with each other to some extent.
While affordability is a big complaint, new sales in North America are back to 2019 levels.
Incentives to move metal when sales slow sure does help.
Highest since 2019 but not back to 2019.
They’re still quite a bit lower than in 2019. And 2019 was lower than 2016 and 2000. New vehicle sales haven’t grown in over two decades.
Here are the annual unit sales, not including 2024, which is running above 2023 but below 2019:
https://wolfstreet.com/2024/01/04/ugly-charts-of-auto-sales-by-gm-toyota-ford-stellantis-oh-my-got-crushed-by-hyundai-kias-record-sales-tesla-has-arrived/
Between Europe, the US and Asia, 15 million units of production were lost between 2019 and 2021. Another ~4 million were lost to supply chain disruptions continuing into 2023.
Call it an even 20 million for 2020-2023.
That’s a LOT of inventory. Granted, not all of this is US supply, but if we just consider North America, that’s ~8 million units of production destroyed between 2020-2023.
No way about it, that’s going to impact the market.
Correct, it will.
But there are lots of NEW vehicles for sale now — the problem is they’re priced way too high, after the price spike, and automakers don’t want to give up their big-fat pandemic-greed margins.
Buy the dip NVDA to $250 my Chevy is powered by GPUs and opium I buy from the Taliban
Not all at connected to cars but the Taliban has outlawed production of opium. I recommend looking to Myanmar for any new supply lines you need.
Remember in 2000 when we gave the Taliban billions and weapons FOR opium production?
They threw in a few spots in flight school too…. They do, however, love used cars. Mostly Japanese models though?
If price on one product, such as automobiles, goes up over some months there are two possible causes, “inflation” or by classic “short supply” we learned about in Economics 1.
It was pretty clear to me during Covid times that the shortage of vehicle supply, and electronic parts was one cause. The other component: inflation–was also likely–but seems to me only now are we able to clearly see the proportions of each. Your purple line on the graph is likely the inflation part. The red/blue lines represent the sum of inflation and supply shortage.
I was concerned at the time when it seemed in a bit of panic you attributed it all to inflation. I’m much happier now to see now in retrospect more clearly the role of each component on your new graph. About 28% inflation. 23% supply shortage. 7.3% inflation over 3.5 years.
You still don’t get inflation. I give up. End of story. I told you this two years ago. But you just don’t give up. You have a funny homemade notion of what inflation is. Fine with me.
Been looking for a new car, 3 years. Refuse to pay over inflated prices.
Seeing a lot of good deals $30 to $35,000. Trucks are still way over-priced in my opinion.
Was wondering how the Car Repossession market is doing. Wolf wrote an excellent article last week, and Repo’s are behaving so far.
Seems like many Americans are using home equity and credit card debt to deal with inflation. Will the Fed lower rates this fall? Probably.
Stock market is acting irrational. Dow opens 300 points higher, only to close 200 points lower……..similar action for S&P and NASD. Yes, I believe we have been in a huge Bubble for a very long time.
Bear markets are a normal part of life. A Bear Market will have a huge negative effect on Automobile sales. That is IF we have a Bear Market.
The future is always interesting.
Have a feeling Dodge trucks and probably Ford will have real good deal soon judging by how expensive they are and how inventory is starting to pile up at the lots
Once the DOW is back down to its fair value of like 10,000 after multiple elevator drops, Ram trucks will be 60% off msrp. Stellantis has a rather grotesque oversupply that they continue to feed.
10,000 on its best day of the year.
Corollas are always a deal!
You can’t go wrong with a Corolla.
I mean unless a big truck hits you. But that could happen while walking too. And then you’d be wishing you had been in a Corolla.
MW: Intel’s stock is down 38% in a week — and it just got downgraded again…
Inflation whack-a-mole. Just as hot services inflation starts to cool, durable goods inflation re-heats.
It’s about to get hot in here.
I hope you’re all doing well. Firstly, I want to express my admiration for the beautiful and informative content on this site. It has been incredibly helpful and insightful.
I am currently exploring the potential of catching the new cycle of car sales. Specifically, I’m looking into stocks like Stellantis and LAD, which appear to be undervalued at the moment. My interest is piqued by the notion that these stocks might be positioned at the bottom of the cycle,
usually the bottom should be in when car price reverse which seems the case from this article .Any insights or ideas on this topic would be greatly appreciated.
How much of an impact did hurricane Beryl have on this? 30bn of damages, not a small portion of which is no doubt cars that needed to be replaced.
The inflationary mindset is definitely out there.
People have “waited” until things were back to “normal.” Most are eager to forget about the pandemic if they haven’t already.
Now that prices have “pulled back alot” and things are “stable again,” it’s time to get a car!
I am curious about RV sales (I had imagined the used market would be flooded 1-2 years post pandemic). One of those old school “indicators.” Per a comment on another article the motor “toys” seem to be moving.
Anecdotally we’re pushing multimillion dollar condos around here, people are happy to pay record prices (it seems?).
So cars have done 4yrs at avg 7% a year inflation.
Nice stable prices. Well done Fed hehe.
Used car prices spiked 55% in two years (late 2020 to mid-2022) and have come down a lot since then, which discussed endlessly here: