Car rates

Used car prices are down from record highs, mitigating the impact of inflation

A sign advertises cash payments for used cars in Alhambra, California on January 12, 2022.

Frederic J. Brown | AFP | Getty Images

DETROIT – Wholesale prices for used vehicles have fallen significantly from a record high set in January, signaling that the worst of skyrocketing prices linked to rising inflation in the United States may be behind us.

Cox Automotive said on Friday that its Manheim Used Vehicle Value Index, which tracks the prices of used vehicles sold at its wholesale auctions in the United States, fell 1% in April compared to March – marking the third consecutive month of decline from the first month of the year.

“We are clearly back to depreciating vehicles again. This is good news both for inflation and for consumers looking to buy a vehicle,” Jonathan Smoke, chief economist at CNBC, told CNBC. Cox Automotive.

Wholesale vehicle prices have fallen 6.4% since January’s record high. However, prices are still extremely high and the index remains up 14% from a year ago.

The price drop comes as Manheim estimates second-hand retail sales fell 13% in April from March, suggesting demand is waning amid record prices.

For more than a year, automakers have been battling a shortage of semiconductor chips that has sporadically halted production of new vehicles, driving record vehicle inventories and higher prices. Circumstances have pushed many buyers into the used car market.

Smoke expects used vehicle prices to remain high but return to “pretty normal models”, with the possibility of some modest price increases later in the year.

“It’s potentially getting a bit deflationary in that regard,” Smoke said, adding that doesn’t necessarily mean there’s going to be a massive price correction. “It’s not a commodity market that people speculate on, and used vehicles are assets that actually provide utility to people.”

“We had an unusual circumstance over the past two years that boosted demand, and we have limited supply,” he said.

Such declines are welcome news for the Biden administration, which has blamed much of the rising inflation rates in the country on the used-vehicle market. Over the past 20 years, the contribution of used cars to inflation has averaged zero. In January, it contributed more than 1% on an annual basis, according to data from the US Bureau of Labor Statistics.

Persistent inflation has driven prices to historic highs over the past year. The trend has been politically damaging for the Biden administration and fueled fears of “stagflation,” an undesirable mix of rising prices and stagnant economic growth.

–CNBC Kevin Breuninger contributed to this report.