Used Car Prices May Have Finally Just Peaked

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by Tyler Durden
Friday, Jun 25, 2021 - 12:26 PM

After a post-Covid surge in used car prices that was so robust it was pricing buyers out of the market, it looks as though the blow-off top in prices may finally be behind us.

That's because the wholesale market, where dealers buy and sell in bulk, has "topped out", according to Bloomberg. The wholesale market can be a leading indicator for prices, meaning used car prices should see a pullback. 

Used car prices have been a key driving force behind U.S. inflation, which is at the highest levels in a decade. Used car prices were up 10% in April and 7.3% in May. 

Zo Rahim, industry analyst at Cox Automotive, said: “Wholesale prices as of right now are at their peak and should start to come down. We are seeing a decelerating pace of price increases in the first two weeks of June, compared to what has been just an absolute surge.”

Due to the lag behind the wholesale market, Rahim predicts “a few more weeks of retail prices increasing, before they start to follow suit.”

Manheim's used vehicle value index was up 36% from a year prior in mid-June. In April, the index had advanced 50% year over year. Meanwhile, the average age of vehicles on U.S. roads is up to a record 12.1 years.

Fed chair Jerome Powell addressed the auto market's impact on inflation earlier this week, stating: “A pretty substantial part, or perhaps all of the overshoot in inflation comes from categories that are directly affected by the re-opening of the economy, such as used cars and trucks. Those are things that we would look to stop going up, and ultimately to start to decline.”

He also warned: “These effects have been larger than we expected and they may turn out to be more persistent than we expected.”

Dealers like CarMax are preparing for the demand to continue. CarMax is hiring 5,000 professionals this summer, the report notes. 

“Consumers are sitting on savings that they have accumulated over the last 12 months, and are leveraging that money to buy durable goods such as cars,” Rahim concluded.