Used car prices are finally cooling off, but buying one is still difficult

  • Used vehicle prices rose only 0.2% last month after three months of record increases.
  • The price is still up more than 40% from last year, according to US government data.
  • The real relief can be far away due to the supply issues in the new car market.

The used vehicle market is finally showing signs of stabilizing after three consecutive months of record price increases, according to data from the US government’s latest monthly inflation report.

The average price of used cars and trucks rose only 0.2% in July, barely budging after June’s 10.5% peak was responsible for a third of the overall increase in the economy. inflation.

But while the situation hasn’t deteriorated for car buyers, it hasn’t improved either – and it might not get better for some time.

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Depending on who you ask, average used vehicle prices are still up almost 42% from last year (according to federal authorities) or 23.6% (according to the Manheim Index). ), which means the used Ford Escape SUV could have cost $ 17,000. will now cost you between $ 21,000 and $ 25,000.

This leaves plenty of room before prices return to known territory, and there are a few reasons that could take some time.

For starters, one of the reasons prices have come down is that fewer people bought used cars last month than usual. Cox Automotive estimates that sales fell about 15% in July compared to the same month last year.

In other words, there is likely to have been less competition among customers to drive up prices. When buyers return to dealer lots at normal levels, it is not entirely clear where the inventory will come from, as there is no used car factory.

Normal used retail supply is typically around 44 days of inventory, which means dealers have enough cars in stock to sell for a month and a half. July ended with 39 days of supply.

Problems in the new vehicle market continue to have a ripple effect, particularly due to the lack of semiconductor chips needed to run modern cars.

“This ‘two steps forward, one step back’ path to increased semiconductor availability and light vehicle production is likely to limit the rate at which used vehicle prices fall,” Ryan Brinkman wrote. , analyst at JPMorgan Autos, in a research note.

New vehicles, meanwhile, continued their price increases with another 1.7% increase last month for a 6.4% year-over-year increase, according to the inflation report. Since all used vehicles start life as new vehicles, these new higher prices are likely to be factored into their eventual cost.

Another (related) reason for the limited supply is that rental companies like Avis and Hertz keep cars longer instead of selling them on the second-hand market.

Ten years ago, 30,000 miles on a rental car was considered high. Last year the average mileage was around 50,000. Last month that number reached 88,000, according to Manheim. In addition, these units sold 6% more this year than last year.

“Even six months from now you will still be faced with some kind of slightly appreciated price just because there is so much demand that is not being met right now,” said Ivan Drury, senior knowledge manager at Edmunds. ,

New car prices will have to come down before any real improvement hits the used market, he said. Until then, buyers shouldn’t be holding their breath.

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