The combination of a huge drop in wholesale prices and a slowdown in sales means consumers looking to land an affordable deal on a car or truck may find them on used car lots, if they hurry.
Wholesale prices for used vehicles fell 4.2% in June from May according to a quarterly report released Monday by Manheim—a unit of Cox Automotive and a major operator of wholesale vehicle auctio
“The 4.2% drop is among the largest declines in MUVVI (Manheim Used Vehicle Value Index) history and the largest decline since the start of the pandemic in April 2020 when the index plunged 11.4%,” said Chris Frey, senior manager of Economic and Industry Insights for Cox Automotive.
Indeed, wholesale prices for the top selling vehicles at auction saw major declines, according to Manheim research.
For instance, top seller, 2020 Ford Explorer XLT sold for $28,400 on July 5, a $500 dip over the preceding 30 days but down $8,100 from a year ago.
Lower wholesale prices for dealers looking to stock their lots generally means prices for buyers will decline.
Frey attributes some of the wholesale price decline to lower auction activity in June, saying, “Buyers at auction look to have taken an early summer break, and while used retail inventory has been improving over the last several weeks, we are expecting less volatility in wholesale price movements through year-end.”
That may be so, but there’s another important factor likely to drive down used car prices. New car inventories were sparse during the Covid-19 pandemic due to production interruptions for health and supply chain issues sending buyers to used vehicle lots in hopes of finding a car or truck with features and body styles they preferred.
The increased demand combined with lower inventories due to fewer trade-ins sparked higher prices for pre-owned vehicles.
With both situations now attenuating that’s changed according to Pat Ryan, CEO and founder of online vehicle shopping site CoPilot.
“The new car market is coming back as supply finally starts to replenish, and consequently, consumers are becoming less interested in buying used cars,” said Ryan in a statement.
Bolstering that assessment is Manheim research showing resale values for one-year old used vehicles fell 4.3% from 2022 as consumers who may have looked for nearly new vehicles when inventories were tight are now finding what they want on new car lots.
Values for three-year old vehicles have also fallen after reaching a peak of about $31,000 earlier this year. Those were hot units for those priced out of the new car market, but again, conditions have changed.
“The three year old values have fallen to about $29,000 and are now down 8% versus 2022 and up 2% versus 2021,” said Jeremy Robb, Senior Director, Economic and Industry Insight at Cox Automotive during a webcast Monday. “While economic uncertainty remains at the forefront the lack of supply for this core unit in the U.S. retail ecosystem likely keeps the floor on values.”
Looking at specific vehicle segments, compared to June 2022, last month pickups and vans lost less value than the industry as a whole, at 6.6% and 8.5%, respectively, while sports cars fared the worst at 14.8% year-over-year, compact cars lost 12.6% and midsize cars were off by 12.2%, according to Manheim research.
It comes down to the usual law of supply and demand. When new vehicle sales stall or decline there are fewer trade-ins, meaning less fodder for wholesale auctions dealers depend on to stock their used vehicle lots. That’s what drives up prices. What drives them down is when there are more vehicles but fewer retail customers.
But Cox Automotive experts view June’s sharp drop in wholesale prices as a bit of a seasonal anomaly with activity at auctions expected to bounce back. Fair warning for consumers looking for a used car bargain—waiting may cost you.
Notes CoPilot’s Pat Ryan, “While we may see more relief on pricing in the second half of 2023, with supply yet to fully recover and interest rates still high, it will likely be a long time before used cars become significantly more affordable to consumers in real terms.”
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