Prices are rising again, amid tight supply, sharply reduced flow through the used-vehicle pipeline, and strong demand.
By Wolf Richter for WOLF STREET.
Prices of used vehicle sold at auctions across the US jumped by 1.3% in November from October, seasonally adjusted, continuing an upward trend that started over the summer, according to the Manheim Used Vehicle Value Index, which is adjusted for changes in mix and mileage (red in the chart).
This jump flipped the year-over-year reading to the first increase (+0.2%) since August 2022, after the historic plunge during which prices gave up nearly 50% of the pandemic spike, with a bottom in mid-2024. Now prices have turned around.
This has implications for inflation because the historic plunge of used vehicle prices was a significant contributor to cooling core inflation measures. Now used vehicles have turned into a headwind in the struggle to contain inflation.
Not seasonally adjusted, wholesale prices were roughly unchanged in November from October, which whittled down their year-over-year decline to 1.0%, from the double digits earlier in 2024, and the smallest year-over-year decline since August 2022 (blue in the chart above). Wholesale prices normally decline in November, as volume slows during the Thanksgiving week.
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 off-lease vehicles and repos, from corporate and government fleets, other dealers, etc.
The Three-Year-Old index declined 0.9% in November, but that was less than the five-year average decline between 2014 and 2019 of 1.2%, “indicating depreciation trends were less than typical, especially earlier in the month,” said Manheim, a unit of Cox Automotive. Manheim runs about 8 million vehicles a year through its auctions.
The average daily sales conversion of 55.6% “was much higher than we normally see at this time of year,” Manheim said. Over the past three years, the daily sales conversion rate averaged 50.7% in November.
The used-vehicle pipeline is messed up, and will be for years.
Leasing activity plunged in 2021 and 2022, amid new-vehicle shortages and uncertainties about lease-end residual values due to the insane spike of used vehicle prices at the time.
As a result, the number of leases that matured in November was down by 36% from November 2023, according to J.D. Power. This plunge in lease maturities translates into a plunge in supply of two-year-old and three-year-old vehicles to the used-vehicle market. And it will drag into 2025 and 2026.
A fundamental issue for used-vehicle supply in 2024 through 2026 is that new-vehicle production and sales plunged from 2021 through 2023 due to the semiconductor shortages, and sales plunged, and then were slow in coming back up, and are still well below 2019 levels. Compared to 2019 sales levels, between 2020 and 2024, 10 million fewer new vehicles were sold.
On a narrower scale, over the seven quarters from Q2 2021 through Q1 2023 when the chip shortages hit vehicle production and sales, automakers sold 6 million fewer new vehicles than over the seven-quarter period before the pandemic.
These 6 to 10 million new vehicles that didn’t get built and weren’t sold would have entered the used-vehicle market over the years, but now they’re missing and will not be able to supply the used vehicle market over the years.
Retail inventories are tight have been zigzagging lower all year. At the start of November, inventory at used-vehicle dealers was about 2.17 million units, down by about 26% from November 2019, according to data from Cox Automotive.
Used vehicle retail sales have jumped by the double-digits year-over-year over the past few months amid strong demand – much lower prices are doing the trick. In November, used vehicle sales increased by 15% year over year, according to preliminary estimates by Cox Automotive, after a 12% year-over-year increase in October.
Powerful tailwind in the struggle against inflation turned into headwind.
Retail prices are starting to show the effects of these dynamics. From the beginning of 2022 through the summer of 2024, the CPI for used vehicle plunged by 28%, giving up half of the ridiculous 76% spike of the prior two years.
These lower retail prices have re-ignited sales volume. But inventories are tight, hampered by the much-reduced influx of vehicles into the used-vehicle market due to much lower sales of new vehicles in 2020-2023.
So wholesale prices have ticked higher in recent months, after the historic plunge, as dealers replenish their inventories to meet demand. And retail prices, which lag wholesale prices by a couple of months, also started rising again.
The used vehicle CPI already flipped, and spiked by 2.7% in October from September (+38% annualized), seasonally adjusted. Not seasonally adjusted, the index also rose, though October is usually one of the weaker months of the year.
The 2.7% jump in October came after three months in a row where prices formed a bottom and halted the long plunge. And it reduced the year-over-year decline to 3.4% from double-digit year-over-year drops over the summer.
The CPI for November will be released on December 11, and we’ll see the next installment of this story.
The 28% plunge of the used vehicle CPI since early 2022 was a powerful contributor to the cooling of core CPI over the same period. But that ended over the summer, and the mere fact that it stopped plunging contributed to the end of the cooling process of CPI.
And now the used vehicle CPI is contributing to the current re-heating of the inflation measures, particularly the core CPI and the core PCE price index.
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A nice 1988 BMW M5 wi th 77,000 miles just sold for $89,500, so it really does appear that used car prices are somewhat on the rise.
That’s not exactly what we’re talking about here. The key index here is the three-year-old index, not the four-decade-old index 🤣
If you like or want more newfangled stuff, a cute 2021 Ferrari Roma
sold on BAT for $177,000 on 12/6/24 and was a good buy.
You’re gonna have to go back the beach dude…. The index covers average cars, talking 3-4 year old chevys and fords not Ferraris and bmws …
Ferraris and BMWs are very average cars in Beverly Hills and far more common than other vehicles.
There are a small number of 30 and 40 year old cars left that have not been junked and there are more guys that want to “revisit their youth” and buy one (before selling it a year). The E28 M5 was a fun car in the day (I wanted one when I was driving an E28 535i in the 80’s) but they have less horesepower than a new Subaru Outback and most modern minivans. I replaced the 535i with an E34 M5 in the mid 90’s. I think that the E34 M5 was the first sedan in America with over (SAE Net) 300hp, but today the Toyota Camry V6 has similar power and performance (and a base Tesla model 3 will smoke it).
Salt Water Daffy
ApartmentInvestor – if you think the value of a car is pure in HP and straight line speed, you need to learn to drive or learn that an Outback or minivan do not possess the handling traits of an older M5.
Not saying they couldn’t win on a track but again that isn’t a handling “trait”…it’s a raw number.
A modern camry would likely beat almost any stock car from the 80’s or 90’s on a track. Doesn’t mean steering feeling, weight and balance are better
Feels like the housing and car markets are the opposite of each other. New housing inventory is moving better than existing as people don’t want to lower prices so lots of homes on market not moving. Obviously new cars not moving and inventory piling up and inventory of used cars tight so still priced high but low inventory.
…to reprise discussion of comments from what seems not that long ago: “…any index of the best used cars to live in?…”.
may we all find a better day.
I guess I will just hold on to my 7,12, and 16 year old Hondas.
My 13 year old Acura is still going strong. Just did my 190k oil/filter change.
Since new car sales prices are falling, shouldn’t this counteract the rise in used car values on inflation?
DO NOT WANT ANY vehicle newer than 2018
to many chips/programming
my son is going thru problem for his 2020 and dealer wants $1800 for computer problem
my 2001 F250 is fine and drives well with only 288k miles on it
just broken in
2018 is still too new. Can’t stand the push-button ignition.
An FK8 Civic Type R is the only push-to-start car I’d ever consider. Even the 9th gen Accords are push-to-start :(
There is a potential correlation between the extraordinary increase in new vehicle prices and the derivative market. Pre-owned vehicle prices.
Core CPI,PPI and PCE all rising and sitting +/- 3% and yet Fed Funds Futures showing the Fed cutting again is a lock. Markets are missing something
@Craig 👍👍, Defitintely !
Wolf,
CPI Inflation comes out December 11, not December 10.
Also PPI Inflation comes out December 12.
Definition of tailwind and headwind:
”There are special cases such as headwinds, where the wind acts opposite to the planes direction. Other special cases include a tailwind, where the plane and wind are acting in the same direction. As you may suspect, the speed of the aircraft increases when there is a tailwind and decreases when there is a headwind.”
That is certainly the case when sailing downwind versus upwind.
I recently purchased access to a popular dealer wholesale pricing app, and if anyone is wondering, on the reasonable side of things, a vehicle dealer’s retail price at $24K has a $19-20K average wholesale price. Conversely, a late-model European vehicle that retails on the higher side of five figures can have a $10-15K difference between avg wholesale and retail.
Thanks for this reporting,,,
IMHO, the numbers you report, which I am NOT questioning, are NOT enough to keep any vehicle dealer in biz 4 long.
OTOH, it has been my very very sorry experience to have ”dealer” employees call me a liar because they did not recognize their own digital/web inputs, etc.
SO, for now, just laying low with a couple of now certifiable antique vehicles that have some, but not overwhelming TECH
Strong demand for something besides crappy crypto? Sounds like progress to me.
“Crappy crypto?” You mean you didn’t go all-in on Hawk Tua coin?
Didn’t want the financial STD ;)
What about the “dontbuy” crypto?
Seems like the new auto manufacturers would have a primo opportunity to offer more incentives to attract those on the fence whether to buy new or used. Not sure if auto management teams are aware of these conditions as pointed out repeatedly by Wolf, as they seem to constantly ignore or aggressively offend their customers. Take a dip in profits to get the plants running and the pipeline cleaned out. Ah, but I’m just an old guy trying to keep the 2 vehicles I have running reliably. I leave all this strategy stuff to those in charge.
What is the effect of used EVs on the used car inventory.
Used EV prices are very high. Before the pandemic, used EV prices were mostly below ICE vehicle prices at wholesale auctions. But then during the pandemic, EV prices shot up by 146% when Tesla flipping was a thing (red in the chart below), while ICE vehicle prices “only” soared by 64% (blue).
Both have come down from that spike but not nearly enough, and used EV prices remain far higher than ICE prices.
EV prices are still up by 82% from the end of 2019, while ICE vehicle prices are up “only” 35%.
And it shows on the ground. I’m looking at the Hertz sales site from their used-vehicle dealerships, and they want lots of money for their high-mileage used Teslas. It’s kind of astounding, and they’re selling them too. For example:
— 2022 base Model 3, 85,000 miles, for $22,295
— 2022 Model 3 Long Range, 78,000 miles, for $25,596
— OH, there’s cheaper one, LOL, a 155,000-miler 2022 base Model 3 for $18.966.
This is high-mileage expensive rental iron. Those Teslas got a lot of use at Hertz. And they’re selling at astoundingly high prices still. People buy them, plenty of demand apparently, which is why used EV prices remain so high.
Hertz lost a lot more money on its ICE vehicles – I discussed the details here, click on the link below –because it bought ICE vehicles at used wholesale auctions to replenish its inventory in late 2021 and early 2022, when prices were exploding, thereby driving up auction prices further, and then prices crashed for the entire used market, and Hertz had to take big write-offs. Of the $969 million in write downs at the time, only $195 million was related to EVs. Hertz had screwed up massively buying ICE vehicles at auction during peak prices.
https://wolfstreet.com/2024/04/29/sagging-used-car-prices-spiking-maintenance-repair-costs-and-a-post-bankruptcy-propaganda-coup-turn-toxic-for-hertz/
A case in point:
I had a 2015 Nissan LEAF middle model with about 60k miles and about 95% battery. Good condition. Prior to the pandemic (2019) I was considering selling it; probably would have had a $5k to $6k price.
Sold in late 2021 thru a consignment lot; car ended up going for over $10k.
Crazy
Watching from the sidelines with my popcorn and 2012 Ford. Even though I sometimes get the itch for a newish vehicle, I’ll probably wait another 5 or 10 yrs.
Same here- 2011 Ford Escape with 150k miles and still running great with the 2.5 engine. I was going to replace it but I’ll wait- maybe in 2026.
My house is paid off, and I got there by not buying expensive new vehicles that lose so much money as soon as they come off the lot. I have done well driving used cars with low mileage, and pay cash upfront rather than financing. I don’t drive my dream vehicle; it is simply a point A to point-B thing.
That’s right. Personal debt especially when it comes to vehicle debt is a sucker’s game…
C$25,000 for a 2021 model Toyota car. Might be a deal for Americans if the loonie goes down to USD$0.45 to 50 cents next year.
I think a lot of what this increase is related to the amount of storm damaged cars in the South that needed to be replaced with insurance money. I am friends with the owner and Finance manage of a local Dodge dealer here in Florida and they are having record months because of all the replacement vehicles they are selling. This will die down after the tax money blip in early next year.
Will be interesting to see:
1) how much this flip impacts topline and core CPI
2) fed reaction to the flip
Without rehashing the past, the shift of UV CPI from tailwind to headwind could be described as “transitory”, arising from a recognized decline in UV supply (well described by WR in the GDFA) in the face of strong consumer demand.
But with new unit sales only recently creeping toward 16MM (down 17-17.5MM pre 2020) we can’t count on much relief on the supply side. Meanwhile UV APRs are already north of 13% and average loan terms are approaching 72 months without much measurable impact on demand.
UV market is fun to watch. If you ever have a chance to go to a closed auction (Manheim, Adesa, etc.) do so. Possibly the purest expression of unfettered supply/demand capitalism this side of a middle eastern bazaar.
Should used-vehicle prices be an inflation tailwind (pushing it along) rather than a headwind (pushing against)?
“used vehicles have turned into a headwind in the struggle to contain inflation”
A tailwind to the headwinds of the tailwinds against the headwind.
How shocking! A depreciating, wasting asset decreases in value Year on Year.
Not to mention the carrying costs of these overengineered pieces of garbage – reg fees, insurance, repair costs at $200+ per hour, etc. And then there’s the heated seats monthly subscription, XM radio sub, and on and on…. Sheep to be shorn.
“repair costs at $200+ per hour”
That’s why I stopped going to shops and fix my own car now. Saves me $$ and now I can make sure it’s done right.