Amid tight supply and solid demand.
By Wolf Richter for WOLF STREET.
Inflation pressures in used vehicle prices, after the historic plunge from the historic spike, have now been rebuilding for an entire year.
Prices of used vehicles sold at auctions where franchised and independent dealers replenish their inventories jumped by 1.6% in June from May, and were up by 6.3% year-over-year, seasonally adjusted (red line). Not seasonally adjusted, prices were up by 5.1% year-over-year (blue line).
These year-over-year price increases, which began in November 2024, were the biggest since mid-2022 when the historic price spike petered out.
The data is from today’s Used Vehicle Value Index by Manheim, the largest auto auction house in the US, and a unit of Cox Automotive. The index is adjusted for changes in mix and mileage.
Supply at these auctions comes from rental fleets that sell vehicles they pulled out of service, from finance companies that sell their off-lease vehicles and repos, from corporate and government fleets, other dealers, etc. These prices are the costs for dealers. Prices that consumers pay when they buy from dealers, as tracked by the used-vehicle CPI, follow these wholesale prices with a lag.
Some of the price pressures come from EVs.
Used EV wholesale prices have been ratcheting higher for a year at a substantial rate, and in June were up by 12.1% year-over-year seasonally adjusted, and by 9.8% not seasonally adjusted, according to the data from Manheim.
Prices of used vehicles with internal combustion engines (ICE) were up year-over-year by 5.6% seasonally adjusted, and by 4.5% not seasonally adjusted.
Both EV and ICE-vehicle year-over-year price increases in June were the hottest since mid-2022, but EV prices increased by over double the rate of ICE vehicle prices.
EVs are still a small but rapidly growing segment of what’s going through auctions, supplied mostly by lease returns and rental fleets.
Amid tight inventories and solid demand.
“Even so, retail sales continue to run a bit hotter than prior years, and off-lease supply into the market is still on a downward path, two factors which should be fairly supportive of higher values as we move onward,” Manheim said.
Retail inventories are tight amid supply constraints from off-lease vehicles and solid demand. The inventory at used-vehicle dealers at the end of May (latest data available from Cox Automotive) ticked down to 2.21 million units, roughly flat year-over-year, amid higher sales, and down by about 20% from the same period in 2019.
Influx into the used vehicle market comes from vehicles that had been purchased new some time ago. They enter the used market via trade-ins, lease returns, fleet turnover such as at rental operations (2.5 to 3.5 million vehicles in a normal year), etc.
The influx of supply into the used-vehicle market is still seeing the effects of the semiconductor shortages in 2021 and 2022 that had caused global vehicle production to plunge. In the US, 6 to 10 million fewer new-vehicles were sold over the two-year period than might have been otherwise, and these 6-10 million vehicles are now missing, and are not entering the supply pipeline of used vehicles.
As part of this scenario, leasing activity plunged during this time, and so the number of leases that have been maturing recently has been way down, and so supply from leasing companies, when they sell the two and three-year-old off-lease vehicles at auctions, has plunged. This may drag into 2026. And if demand remains solid amid tight inventory, prices will continue to feel the heat.
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I’ve wondered if the auto makers were going to come close to fulfilling their goal of keeping supplies really constrained after the Covid years. It appears to me that it’s a bit of forest vs. trees problem. If you look at certain brands/models, there is an over supply, but the charts posted here indicate that we have yet to completely return to the “before days”.
I’m just hoping I can nurse my aging fleet along for another few years in the hopes that the models I want that currently have a too-tight supply will become more readily available.
Do we know what percentage of used car sales go through the wholesale/retail channel versus person-to-person sales (Craigslist, eBay Motors, etc)? I’d be curious to know if that is changing over time.
These sales here are wholesale (auctions) = supply to dealers which then sell to retail customers. This has nothing to do with person-to-person sales.
There are close to 20 million used-vehicle wholesales in a decent year; and close 20 million used-vehicle retail sales by dealers in a decent year. The industry adds these up, and it comes out to be about 38-39 million used vehicle transactions. Note that this includes some vehicles with multiple transactions… a used vehicle can change hands three times in a few months, no problem (1. customer trades it in; 2. dealer sells it wholesale to another dealer; 3. that dealer sells it retail to a retail customer).
In a few years before the pandemic, used-vehicle transactions by dealers and auctions hit 40 million-plus.
I got a low mileage 3-year old used EV last year for around 1/4 it’s original list price after rebates and credits when stuff was cheap in 2024. Saves me around a grand on fuel. These things fall off the depreciation cliff fast.
Was a good deal while it lasted.
1/4 retail new EV greater buy ! Wolf you predicted the rise which hits inflation 4 years ago with the plunge in new car supply and the lack of rental fleet supply.
Inflation will remain sticky with these rising used car prices .
You have a terrific mind with long term cascading influences on the economic data that drives much of our economy.thanks for them insight
The dollar is having its worst year since Nixon. Why it will get even weaker in the days and months ahead.
MW: Home sellers have gotten tired of cutting prices. So they’re yanking their houses off the market.
Yes, sell them later for even less?
MW: Treasury rout grows as tariffs and supply test demand after Trump’s megabill guaranteeing exploding deficits and government debt
Wolf, could the 10% drop YTD in the USD play a factor in rising wholesale used car prices?
Thanks
I would guess the heard is also front running future Tarrifs hikes that they expect to see in future car prices. A classic example of a; Self fulfilling prophecy!
Used vehicle are the one thing — maybe the only thing, LOL — that we do not import. So neither the dollar exchange rates nor tariffs have any impact here.
Why do the seasonally-adjusted annual changes differ from the non-seasonally adjusted figures. Isn’t the season the same as one year prior?
Seasonal adjustment is not year-on-year comparison. A year-on-year comparison is inherently seasonally adjusted because it compares the same seasons across two different years.
Seasonal adjustment is important for month-to-month, quarter-to-quarter, or other sequential comparisons (known as time series).
For example, retail sales in December are usually much higher than January, due to people buying holiday gifts and then pulling back spending in Jan. If you don’t adjust January for that seasonal difference, it looks like sales collapse in January each year.
So there are “seasonal factors” used to seasonally adjust time series data.
To seasonally adjust retail and food sector sales data, you divide December’s non-adjusted number by the December seasonal factor, and the Jan number by the Jan seasonal factor.
Dec seasonal factors tend to be >1, which adjusts the number down, while Jan factors tend to be <1, which adjusts the number up. This smooths out the seasonal holiday buying from the time series data.
“A year-on-year comparison is inherently seasonally adjusted because it compares the same seasons across two different years.’
This is not universally true. In terms of sales volume, for example, seasonal adjustments also account for the number of selling days in a month. This June had 2 fewer “selling days” (24) than June a year ago (26). So retail sales account for that with seasonal adjustments.
Seasonal adjustments are complex, they’re not just five-year-average variations. All kinds of stuff goes into them.
I often show both — seasonally adjusted and not seasonally adjusted — for those reasons … though that may also be confusing and lead to questions, LOL
That’s a good point about number of selling days. I’ve seen housing sales adjusted for variable holidays like Easter, for example.
Most of the MB EVs coming off lease now are from 2 years ago. They were mostly over $100k new. Now the are about 50-60% retail. MB has cut EV production way back. So now these EV buyers are snatching up the off lease cars quickly. They are really good deals but still fairly expensive cars. Demand has been strong and dealers are battling for off lease cars. I can see how this is adding to the upward pressure. It will be interesting to see what happens after the $7500 EV rebate is gone.
I know three people who bought electric and the $7500 was the MAIN reason for the purchase.
I will say this makes me feel better about my daily driver purchase 3 months back.
I got a 98 Olds Intrigue with 50 thousand miles/great body and interior for 5 thousand,done a few 1000 mile round trips with it and so far so good,put a few bucks into front end align/tire balance/rest of maintenance is on me.
Really seems everything getting more expensive/still a cash buyer for a home but still seems crack priced/I am still on strike!
All Intrigues were built at the GM Fairfax plant in Kansas City, Kansas, where the Grand Prix was also built (the Buick Century and Regal, and the Chevrolet Impala and Monte Carlo were all built in Oshawa, Ontario). The Oldsmobile Intrigue was introduced on May 5, 1997 as a 1998 model, and replaced the aging Oldsmobile Cutlass Supreme. It rode on the second-generation of the W-body, which it shared with the Buick Regal. The Oldsmobile Intrigue was supposed to compete with upscale Japanese and European imports such as Acura and BMW.
Have a car coming off lease in 2 months.
Keep getting voicemails from the original dealers and others too.
No longer need a car.
Any advice – what is the best thing to do to get the most from a dealer who is going to be taking the car?
Simply put, your lease is a call option giving you the right to purchase the unit at the ‘contract residual value’ defined in the agreement you signed at origination.
Step one – dig out your paperwork and find that strike price. Step two – go online and get a few retail values for your car (lots of places to do this, none particularly better or worse but check several).
Chances are that if you leased your car in 2022 you’re in positive equity (current value higher than contract residual). If that’s the case somebody is gonna make money on the car so it might as well be you. Buy it at residual, selll it directly to somebody else and pocket the difference (note however that this can be a huge pain in the ass dealing with online randos etc). In most cases you could also buy it out then turn around and use it as a trade in on your next unit. But if you don’t need a car that’s out. You could always sell it to carmax or local equivalent but you’ll take a haircut on price. Either way you’ve got to buy at residual.
Only you know the details of your specific situation, but if you turn it in (assuming positive equity) the grounding dealer is gonna buy it from the oem captive at residual and flip it for a nice profit. That’s just how the game is played. I say get that money your own self.
Bits,
This is rock solid advice.