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The new-vehicle shortages of 2021-2022 now mean lower supply to the used-vehicle market, amid solid demand.
By Wolf Richter for WOLF STREET.
Used-vehicle prices, which had spiked over the two-year span 2020-2021 by 65% on the wholesale side and by 55% on the retail side, provided rocket fuel to inflation. Then, as prices careened down in 2022 through 2023, giving up about half of the wholesale price spike and about a third of the retail price spike, they contributed to the sharp deflation in durable goods that helped decelerate overall inflation. But this drop in used-vehicle prices petered out in 2024, amid solid demand facing tight inventories due to reduced supply from rental fleets and lease terminations.
Prices of used vehicle sold at auctions across the US dipped a little in December from November, both seasonally adjusted and not seasonally adjusted, but dipped less than in December 2023, which turned the long series of year-over-year declines into year-over-year increases for both measures for the first time since August 2022, when the crazy price spiral had begun to unwind.
Seasonally adjusted, prices in November had inched up to the highest level since October 2023, and in December, backed off by $89, to the second highest level since October 2023 (red line), according to the Manheim Used Vehicle Value Index, which is adjusted for changes in mix and mileage. Manheim is the largest auto auction house in the US and a unit of Cox Automotive.
On a year-over-year basis, these first year-over-year upticks after a long and steep series of year-over-year declines that had maxed out at about 15% twice – in November 2023 and in March 2024 – indicate that this crazy pricing behavior has now settled down into some sort of normalcy, and that used-vehicle prices no longer contribute to the cooling of inflation, and we have already seen that.
Prices are still too high, by powertrain: ICE and EV.
Used ICE-vehicle wholesale prices had spiked by 64% in 2020-2021, but used EV prices had spiked by 145% over the same period, a testimony of the crazy behavior by buyers, armed with free money, such as to-be-forgiven PPP loans. This kind of stuff should have never happened.
Prices have since then come down, but not nearly enough. ICE-vehicle prices (blue) are still 31% higher than they’d been at the end of 2019, and EV prices are still a massive 74% higher (red).
This is an example of the “inflation shock,” as it’s now called, that consumers are still dealing with:
Dealers buy at these auctions to replenish their used-vehicle inventories. Supply comes from rental fleets that sell some of the vehicles they pull out of service, from finance companies that sell their off-lease vehicles and repos, from corporate and government fleets, other dealers, etc.
So prices are still very high, but they have stopped falling amid tight supply and solid demand. Supply is tight because automakers, waylaid by semiconductor shortages, had cut production globally in 2021 and 2022, causing new-vehicle sales in the US to plunge as dealers ran out of vehicles to sell.
Roughly 6 to 10 million fewer new-vehicles were sold in the US over the two-year period, and they’re now missing from the national fleet, and that shortfall has begun to migrate to the supply of used vehicles.
Rental fleets form part of the supply to the used-vehicle market about 1-3 years later when those units get taken out of service. But in 2021 and 2022, they couldn’t get enough new vehicles for their fleets, and so now, supply from rental fleets is falling short.
And leasing activity in 2021 and 2022 plunged, and so the number of leases that are now maturing has plunged, and so supply from leasing companies, when they sell the two and three-year-old off-lease vehicles at auctions, has plunged.
These used-vehicle supply issues, a consequence of the new-vehicle shortages in 2021 and 2022, will drag into 2026.
Retail inventories are tight amid supply issues and solid demand. At the start of December, inventory at used-vehicle dealers remained at about 2.18 million units, roughly unchanged from the prior month, and down by about 26% from the same period in 2019, according to data from Cox Automotive.
Used-vehicle retail sales have risen by the double-digits year-over-year over the past few months, and in December by 13%, based on observed changes in vehicles tracked by vAuto, a unit of Cox Automotive.
Pushing up into inflation figures.
From the beginning of 2022 through the summer of 2024, the CPI for used vehicle plunged by 28%, giving up half of the two-year price spike, which was a powerful contributor to the cooling of core inflation figures. But that ended in mid-2024.
CPI for used vehicles, which lags wholesale prices by a couple of months, bottomed out in August and has since been rising, seasonally adjusted and not seasonally adjusted. Over the three months September through November, the CPI for used vehicles, seasonally adjusted, jumped by 5.1%, which was a big move (red). December CPI will be released next week for the next installment of this story.
Year-over-year, CPI for used vehicles was still down 3.4% in November, but over the next few months, the year-over-year readings too will turn positive, just based on where they’d been a year earlier.
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The post Why Used-Vehicle Prices May Put Upward Pressure on CPI, after Having Been a Powerful Contributor to Cooling Inflation appeared first on Energy News Beat.
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