Used Car Prices Explode To New Record High

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by Tyler Durden
Saturday, Nov 20, 2021 - 01:45 PM

After last week's hot CPI print, the great inflation debate continues to dominate headlines. The Biden administration and Federal Reserve members have been insisting inflation is transitory. But new, used car data shows prices continue to soar, suggesting inflation is anything but transitory. 

Anyone shopping for a used car since the virus pandemic began has been hit with extraordinarily high prices as snarled supply chains and chip shortages crimp new car output, pushing consumers onto secondary markets. 

The Manheim Index, the most recognized wholesale used-vehicle price index by financial and economic analysts, shows that used car prices rose 4.9% in the first 15 days of November compared to October. The overall index has jumped 44.9% from November 2020.  

"As was the case in October, some of the monthly increase is a result of the seasonal adjustment, as November typically sees above-average vehicle depreciation and therefore used price declines. The non-adjusted price increase through mid-November was 2.6%," the report said. 

The report suggests that used car prices will remain high while automakers continue to work through supply chain woes into next year. There are rising probabilities of price fluctuations up and down. 

Ford's CFO John Lawler warned earlier this month that supply constraints could continue into 2022 and said, "we'll be dealing with [supply chain issues] for a while." This means used car prices might rise even further through year-end.

Consumers will have to get used to paying a very high sticker price for a used car. Shown below is the average used car price surges as the available supply sinks. 

The working poor who have had their credit scores tarnished during the pandemic downturn will feel the burden of pricier used cars. If prices continue higher, this means people's incomes will be more heavily weighted to servicing car payments and could take away from other spending (such as eating out). 

According to WaPo, "Rental-car companies for the first time have become major buyers of used cars at auction, instead of big sellers. That's because they can't get enough new vehicles and are desperate to fill their fleets, industry executives say." 

And it's not just rental-car companies buying used cars. Dealers have been soaking up supplies to keep their parking lots full. 

As used car costs resume their vertical move higher, this suggests the used car component of CPI has more room to rise in November...

Not "transitory."