Don’t believe everything you read.
An article recently published by CNBC makes a shocking statement about “where there may be no return to ‘normal’ for the U.S. used vehicle market.” For people who have been waiting out the insanely high prices from the covid shutdown era, this is enough to send them into a panic. What’s more, this is quite the turn of events after used car prices had been on a steady decline all last year.
Perhaps you could buy a vehicle made of cardboard like this Citroen.
Now, here comes the twist: the data CNBC cites if from the Manheim Used Vehicle Value Index. That index tracks not retail used car sales prices but the auction prices or what dealers pay for their used vehicle stock. And while it shows prices have increased 8.8% from the beginning of January through mid-March, that doesn’t mean you need to wave the white flag of surrender when shopping for a used car.
As iSeeCars Executive Analyst Karl Brauer explains, “We know dealers are paying more for used cars at the wholesale level, but we’re not seeing that in the retail pricing space, suggesting the profit margin on used cars is being compressed.”
What that means is dealerships are no longer making the humongous profit margins they basked in during the pandemic. Two years ago, prices were sky-high all over, as you might already know. Since then we’ve seen mounting inflation and interest rates increasing. Bauer said with all three factors in the market high, something had to give. That something is used vehicle prices.
It’s not that car dealerships are no longer making money, otherwise they’d be folding up shop. Instead, they’re just not cleaning up with the kinds of massive profits they saw during lockdowns, etc. Those days might never return, although nothing is absolutely certain.
Cox Automotive data shows the average used car price was down in February, the latest month we have full stats from. The same is true with new vehicle prices as both continue their steady decline back to normal. How long it takes for everything to be as it was before the pandemic isn’t clear, but we know prices are trending in that direction.
According to a study recently conducted by iSeeCars, coupes and hatchbacks are seeing the smallest price decrease from February 2022 to February 2023, followed by pickup trucks. The body type that’s seen the biggest drop in prices is minivans, followed by SUVs and convertibles.
With prices continuing to come down, new car sales are up, although S&P Global says expectations for an increase in March are “muted.” Projections are that sales will be 11% beyond what they were for February but only 8% greater than March 2022.
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