Prices Collapse for Used Cars
(BrightPress.org) – The automobile industry is in the midst of a tumultuous era. The COVID-19 pandemic brought significant changes to both the market and its financing. As interest rates dropped to battle the effects of lockdowns and layoffs, buyers found themselves paying more for an ever-decreasing inventory of new vehicles, elevating the used car market to historic highs. Shoppers may soon find some relief, however, as pre-owned prices are dropping sharply.
The Wholesale Market Can Be Deceiving
In August, the market for used cars began dropping off substantially. That means dealers are paying less at auctions and offering fewer dollars for trade-ins. At the same time, however, Americans are still paying over 7% more for used cars than they were a year ago. Claudia Sahm, the former Federal Reserve banker and founder of Sahm Consulting told The Hill that the separation between wholesale and retail is a result of capitalism at work. The companies selling the products set the prices.
Center for Economic Policy and Research representative Dean Baker told the outlet that while profiteering always plays its role, there’s bound to be some lag between wholesale price decreases and matching dips for consumers. The cost of the inventory already on dealer lots doesn’t decrease because the average went down.
The Big Picture
While there seems to be some disagreement about how automobile prices rise and fall, the numbers are clear: prices are coming down. CoPilot, an automobile consumer app, has a “Return to Normal” tracker that shows while prices are still high, they’re finally starting to dip across the board.
The index shows how much a car would likely be worth without the dynamics of the pandemic, the war in Ukraine, and other factors. The difference, known as the “price premium,” shows the effects in real data. A vehicle between one and three years old, for example, costs a little over $11,000 more than what the same car under typical circumstances would run. While that seems like an awful lot, it actually represents a steep dropoff from the previous month and shows that the market has likely reached its peak.
The Wild Card
The unknown factor, of course, remains the Federal Reserve and inflation. Some of the lowest interest rates in history helped fuel a buying frenzy at a time when supply chain issues made keeping new inventory difficult. Now, as the Fed moves to battle inflation by raising rates, buyers could be looking at higher payments or longer terms, reducing demand. At the same time, as supply chains normalize and new car inventories rise, so do buying options.
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