Wholesale used car prices are down 53% from their crazy pandemic surge: Historic slump continues in December

Retail used car prices have given up only 36% of their price jump so far.

By Wolf Richter for WOLF STREET.

Used vehicle auction prices fell another 0.5% in December from November, seasonally adjusted; and by 2.0%, not seasonally adjusted, according to the value index of used vehicles in Mannheim today. Manheim is the largest auto auction house in the US and a division of Cox Automotive. Its auction sites sell about 5 million cars a year. The index adjusts for changes in mixture and mileage.

The index’s price of $18,110 is down $4,792, or 20.9%, from its peak in May 2022. During the inexplicably insane price run from February 2020 to May 2022, the index jumped 8,842 dollars, or by 63%, to $22,902.

As of December, $4,792, or 54% of the price spike from $8,842, is already gone—a historic low, after a historically insane price spike.

Auction prices slow or fall when traders who go there to replenish their inventory buy less and are more timid about bidding prices and would rather walk away empty-handed than overpay, knowing that are facing price resistance among their own customers.

All of that fell apart during the pandemic when dealers suddenly found themselves with consumers who would pay anything for a used vehicle rather than try to get a bargain. And the dealers held their noses and cowered and bid at auction prices, knowing they could still make huge sums of money at those prices because consumers were simply willing to pay anything. And some of them even posted their observations of this madness on YouTube.

Most people could just keep driving what they already had for another year or two, causing demand to collapse to the point where dealers would have the choice of either eating their inventory for their daily bread or cutting prices. But no, not in 2020 and 2021 when the money was free and falling like manna from heaven, the price didn’t matter and the dealers were snapping it up.

People who bought in 2021 and 2022 are now driving vehicles that have historically depreciated in value in addition to normal depreciation.

The question on everyone’s mind is this: How much more will used car prices fall before price increases start all over again?

Stocks are growing but still quite limited.

Retail used-car inventories rose from lows in February and March 2023, but remained limited with 2.36 million vehicles at dealers at the end of November, compared with a range of 2.8 million to 3, 0 million in 2019, according to Cox Automotive estimates.

That’s one of the interesting aspects here: prices are falling despite a fairly limited supply of used vehicles. Not that there is a glut of vehicles on the market, but it looks like enough consumers have finally gone on a buyer strike, and they continue to go on a buyer strike, and that’s what it takes to bring prices back down.

Retail prices, according to CPI used vehicles, have also fallen by historical rates, but not by as much: by 12.8% from the peak in July 2022, not seasonally adjusted, according to the November CPI. So far, 36% of the pandemic spike has disappeared.

Both the wholesale price index (top chart above) and the retail price CPI (chart below) rose in spring 2023, much more than the normal spring increase, after falling in February 2023 d. This movement, spread only about four months, added to the astonishing volatility of used car prices over the past three years.

Wholesale prices have already fallen well below the lowest levels since early 2023, but retail used vehicle prices haven’t even hit their lowest levels since early 2023 yet, and in November they rose again:

Love reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced tea mug to find out how:

Want to be notified by email when WOLF STREET publishes a new article? Register here.

Leave a Comment

Your email address will not be published. Required fields are marked *