What Do Falling Used Car Prices Actually Mean for You? – Automoblog

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After more than a year of sharp, steady increases, used car prices started falling in the late summer of 2022. The drop in prices has already had wide-reaching effects around the auto industry, but a difficult supply chain situation and higher interest rates makes it hard to predict what that drop could mean for the average car buyer.

Used Car Prices are Falling Fast – At the Wholesale Level

Rapidly falling used car prices may be the headline, but the reported drop is based mainly on the wholesale prices of used vehicles. 

According to the Manheim Used Vehicle Index – a proprietary metric that accounts for average pricing of vehicles, taking into account differences in make, model, body type, model year, and mileage – the wholesale price of used cars reached its peak at the end of 2021. The index fell slightly during the first quarter of 2022 before leveling out for a few months. 

After July of 2022, wholesale used car prices started to see a more severe drop. Between July and August, the Manheim Index fell more than 4%, a rate that has roughly continued since. The October index of 200 marks a 15% decrease from its January peak of 236.3. 

Dropping Price Percentage Varies by Vehicle Type

The average drop in used car prices year-on-year from October 2021 to October 2022 was 10.6%, according to the latest Manheim report. However, the decrease in used vehicle prices varied between different types of cars.

Luxury cars saw the biggest decrease in average used car price over the last year.

Luxury vehicles saw the biggest drop among all vehicle types, with prices falling 13.6%. The next category of vehicles was SUVs and crossovers (CUVs), which saw prices fall 12.4%. Compact cars saw the smallest decrease, with prices falling 6.1% over the last year.

Why Are Used Car Prices Dropping?

A major reason that used car prices were previously so high is supply issues. Since the beginning of the pandemic, the chip shortage and other supply chain issues reduced the supply of new vehicles, resulting in increased demand for used vehicles. 

With those issues showing signs of easing, the supply of used cars has begun to increase. According to one report from Kelley Blue Book (KBB), used car inventory sat at 2.46 million nationwide at the end of August. This roughly matched the inventory from a month earlier, signaling a greater supply of used vehicles compared to previous months.

Chris Frey, Cox Automotive’s senior manager for Industry Insights, spoke to KBB about the change in used car supply, saying, “Inventory volume at the end of August was 10% above year-ago levels, so we’re seeing some improvement.”

Lower Wholesale Prices Aren’t Necessarily Making Used Cars More Affordable

While used car prices are falling for wholesalers, that doesn’t necessarily translate to more-affordable vehicles for individual car buyers. Car dealers may pay less for used vehicles, but that doesn’t mean they’ll lower their asking prices. Despite the latest drop in wholesale prices, retail prices for used cars are still 7.2% higher than the same time last year, according to data from the Bureau of Labor Statistics (BLS).

Even if retail prices eventually drop along with wholesale price trends, other factors mean that used cars are less affordable now than they have been.

Rising Interest Rates Can Counteract Falling Used Car Prices

The Federal Reserve issued a series of rate hikes to the federal funds rate beginning in March in an attempt to counter inflation. At the beginning of 2022, the federal funds rate sat at around 0%. After six rate hikes, it now sits at 3.75% to 4.0%. This has resulted in a dramatic increase in auto loan rates, both for used and new vehicles.

According to industry data, the average rate for a 60-month loan on a new car jumped from 3.85% in January, 2022 to 5.16% in September. More recent data for used car loan rates was not available at the time of publication.

This 34% increase in the average interest rate represents a difference that can change the affordability equation for some buyers. According to a report from the National Automobile Dealers Association (NADA), the average transaction price for a used car in September 2022 was $31,025. Using this as an example, we can see how the increase in interest rates changes the total price and monthly payments for a vehicle.

Purchase Price Interest Rate Monthly Payment Total Cost Interest Cost
$31,025 3.85% $569.27 $34,156.49 $3,131.49
$31,025 5.16% $587.76 $35,265.42 $4,240.42

*This model assumes 100% financing, excludes taxes and fees, and is meant to be used as an example only. Auto loan rates vary greatly by credit score and many other factors.

This difference in total cost and monthly payments can be even greater when it comes to used car loans, as these may vary much more than loans for new vehicles. The cost difference between loan rates is also exacerbated when borrowers take on longer loan terms, which has become a trend in recent years.

Inflation Has Decreased Overall Affordability For Many Car Buyers

The Federal Reserve’s rate increases were implemented to try and tame runaway inflation. While, according to BLS data, the rate of inflation has slowed – the consumer price index (CPI) rose by only 0.4% in October – the CPI is still 7.7% higher than a year ago across major categories. 

The rising costs of living have not coincided with higher wages, which have not seen a meaningful increase over the same period of time. This means that workers are spending a larger portion of their income on goods and services, leaving less room in the budget for car payments and increasing the challenge of saving for a down payment. 

Rising Interest Rates Can Result in Higher Debt Payments

The increase to the federal funds rate hasn’t just resulted in higher interest rates for auto loans. According to data from Bankrate, the national average annual percentage rate (APR) for credit cards increased by 2.74% in 2022. This means borrowers are effectively paying more towards credit card debt overall and are likely to have higher monthly payment requirements.

Mortgage rates have also increased significantly. In early November, rates reached an average of 7% for the first time in more than two decades. While they have since dipped just below that figure to an average of 6.95%, the higher rates can mean a significant increase in monthly mortgage payments, both for new buyers and for current mortgage holders with adjustable rate mortgages (ARMs). 

Monthly debt obligations are part of the debt-to-income (DTI) ratio lenders use to determine the monthly auto loan payments – and therefore overall purchase price – a borrower can afford. Without a corresponding increase in salary, a borrower’s debt obligations account for a larger portion of their income, thereby decreasing their purchasing power.

Falling Used Car Prices: Is Now a Good Time to Buy?

Despite the recent trend of falling used car prices at the wholesale level, it’s still not an ideal time to buy a used vehicle. 

Actual Sales Prices Still Haven’t Gone Down

As mentioned before, falling wholesale prices of used cars hasn’t yet translated into lower sticker prices at dealerships. While wholesale prices started to come down towards the end of July and beginning of August, the average used car transaction price remained at an all-time high as of September, according to data from NADA. 

Experts like Mark Schirmer, director of public relations with Cox Automotive, predict that prices will remain relatively steady in the near future. “We still think that with new vehicle inventory still low, we’re not expecting retail prices or wholesale prices to crash, but we certainly expect for them to come down some,” he said in an interview with The Hill. “We’re not expecting a huge correction. They’re going to stay historically elevated for a while.” For reference, Cox Automotive is the company that publishes the Manheim Used Vehicle Index.

Based on what Schirmer is saying, the price of used cars is likely to remain high for the near future. While that means people buying now will pay more than they would have even a year ago, it also means that those looking to hold out for substantial retail price drops may be waiting for a long time.

Interest Rates Are Still High

For those who need to borrow money to purchase a used vehicle, higher interest rates mean paying more for a loan overall. This means paying more in interest on top of paying an inflated price for a used car.

However, auto loan rates for new and used vehicles are likely to continue to climb through 2023. In September, San Francisco Federal Reserve Bank President Mary Daly told reporters that she believes the Federal Reserve will raise the federal funds rate again – up to around 4.5% this year, and next year up to around 5%. She suggested that the goal is to then keep the funds rate around 5% throughout the year before potentially bringing it back down starting in 2024.

So while auto loan rates for used cars are indeed much higher now than they have been in the recent past, they are also not likely to drop any time soon. That means that people who need a loan to buy a used car may have access to the best rates now than they will for a while. 

Automotive Supply Chain Issues Are Unpredictable at Best

One of the major drivers of the enormous increase in used car prices over the last two years has been supply chain issues that have limited the stock and delivery of new vehicles. Many predict that the vehicle chip shortage – perhaps the most pressing of the auto supply chain problems – will continue through 2023.

Many automakers have worked to develop sourcing alternatives to try and alleviate some of their supply issues. Manufacturers have also made investments in domestic plants that could reduce dependency on foreign producers and international logistics.

But while these strategy shifts and investments could indeed help to create a more robust and reliable supply chain in the long term, it’s unlikely that it will bring an end to current issues in the near future.

According to Auto Forecast Solutions’ (AFS) estimates, shutdowns, delays, and other issues have resulted in a loss of more than 3.5 million vehicles globally in 2022. Regardless of what improvements may come in 2023, it is unlikely that new vehicle supply will return to “normal” in the next calendar year.

For people thinking of buying a pre-owned vehicle, this means that used cars will still be supplementing the lack of new cars for the time being. As a result, sticker prices aren’t likely to budge much at the consumer level.

Do Falling Used Car Prices Mean You Should Buy Now?

The short answer to whether or not it’s a good time to buy a used car is no, not unless you have to. A highly competitive market, record average prices, and high interest rates mean that now is one of the most expensive times to buy a used car in recent history. In short, falling used car prices at the wholesale level have yet to translate to good deals at the used car lot.

Despite the current unsuitable conditions, there are some reasons why people in need of a vehicle might want to purchase a used car at this time, rather than wait. Even higher interest rates are on the horizon, and there are no clear signs of sticker prices dropping anytime soon. So, now may be as good of an opportunity to buy a used car as one may have for some time to come.

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Biggest Red Flags When Buying a Used Car | Smarter – consumerreports.org

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Do You Pay Sales Tax On Used Cars? – Bankrate.com

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Sales tax is a — usually unavoidable — part of buying a used car. It can be a pricey addition to the total cost if you aren’t prepared for it. There are some ways to reduce the amount you owe, but it is best to save up for the cost instead of financing it with your auto loan.

You do pay sales tax on used cars

States don’t make exceptions for used cars. If you buy a used car, you will pay sales tax on it — unless you live in one of the five states that don’t have a sales tax.

Used car sales tax varies by state

State sales tax varies from 4 percent to a little over 7 percent. But most states also have local sales tax, so your sales tax rate could be anywhere from 6 percent to 9 percent.

There are also five states that don’t charge sales tax, although some parts of Alaska may have a local sales tax rate of 7.5 percent:

  • Alaska
  • Delaware
  • Montana
  • New Hampshire
  • Oregon

The exact sales tax you will pay depends on your state and local laws. Some states may have a cap on the amount of taxes you can pay, while others may simply tax a used car purchase like any other consumer product.

In addition to state sales tax, there may be a personal property tax on vehicles or motor vehicle excise tax. You can visit your county clerk office or state government website to learn more about the taxes you will pay where you live.

How to calculate used car sales tax

Dealerships will likely calculate the taxes for you. But if you plan on buying from a private seller, the math can be done relatively pain-free.

  • Divide your sales tax rate by 100 to get the sales tax as a decimal.
  • Multiply the price of the vehicle by the decimal.
  • Add the tax amount to the price of the vehicle.

So if your sales tax rate is 6.25 percent, you would divide that by 100 to get 0.0625. From there, you would multiply by the vehicle price — the average in 2022 is a little under $30,000, according to Kelley Blue Book. Using that average, the amount you would pay in taxes is $30,000 multiplied by 0.0625, or $1,875.

Many states allow you to deduct the amount of a trade-in from the sale price before taxes. This is extremely useful — after all, a trade-in worth $10,000 will significantly lower the amount you pay in sales tax. However, you will likely need to trade in your car and purchase a used car from the same dealership to get the benefit. If you sell your old car privately or trade it in at a different dealership than you purchase from, the money from the sale will be considered cash, not a trade-in. Which means you’ll still pay tax on the full price of your next vehicle.

Unfortunately, you won’t be able to take advantage of tax deductions on a used car. And while you may be able to get a federal tax credit on a used electric vehicle (EV), state tax credits may not be available.

Can you avoid paying sales tax on a used car?

Under most circumstances, no — you cannot avoid paying sales tax. No matter what state you buy your car in, you will have to pay sales tax for the state you register the vehicle in. To avoid paying sales tax, you will have to register the vehicle in a state without sales tax.

And while that may seem like a convenient solution if you live near one of those states, it is illegal for most people. You need to register your vehicle in the state where you have your license — which is the state where you live. There are only eight states that allow nonresidents to register their vehicles, but it may still prove difficult to insure your vehicle and register it annually, so it isn’t a good long-term solution.

The bottom line

Unless you live in a state without sales tax, you will pay sales tax on a used car purchase. And while some states may offer deductions on sales tax or different rates for a big purchase, it should be part of your car buying budget.

Ideally, you should have savings to cover the taxes on a purchase. You can finance them with a used car loan, but it will cost more — you will wind up paying interest on your tax.

Learn more

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Used car prices are falling — but monthly payments are spiking as Fed hikes rates – MarketWatch

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Interest-rate hikes from the Federal Reserve are raising average monthly car payments despite falling prices for used cars, according to a study.

The average monthly payment for used cars is 47% higher this year, hitting $551 a month, as compared to 2019, according to analysts at Cox Automotive, a platform that facilitates faster vehicle transactions.

The firm expects monthly car tabs to keep increasing, touching $570 by the end of the year, with the trend continuing in 2023.

“There’s been a marked shift in consumer and dealer sentiment about where the used vehicle market is headed as we close out the year,” wrote Dale Pollak, the executive vice president for Cox Automotive and the founder of VAuto, a platform that provides live market views to new and used inventory management for the automotive industry, in an analysis for the platform. 

See also: Carvana plans to lay off about 1,500 employees, 8% of workforce

The Fed’s aggressive, inflation-fighting policies are hastening an “affordability crisis” in the used vehicles space, said Jonathan Smoke, Cox Automotive’s chief economist. Higher rates coupled with a potential recession are adding flames to the fire, he added.

Carvana recently reported sales of 102,570 vehicles, down from 117,564 from the third quarter of the previous year.

Used car dealers are struggling with significant drops in sales. Michael Ward, an Equity Research Analyst covering the automotive sector with Benchmark, said that used car sales were down 13% in the third quarter, compared to last year. 

Carvana
CVNA,
-3.13%,
the online car dealer, recently reported sales of 102,570 vehicles, down from 117,564 from the third quarter of the previous year.

Cox Automotive analysts have lowered their projections of retail used vehicle sales in 2022 to 19.1 million, down almost 2 million units from last year.

Affordability and supply chain issues will be carried forward in 2023, dampening demand and sales even further, the firm said.

The auto industry has been struggling with supply chain issues since the pandemic. With the shortage of semiconductor chips, car dealers were able to push prices above MSRP. Sales volume, however, dropped.

New car sales are estimated to close at 13 million units in 2022, approximately three million below the levels of previous years.  

New car prices are also beginning to cool. They are still selling for more than the manufacturers’ sticker prices on average, but are closer to the MSRP.

A number of brands are selling their models below the sticker price, something that was once normal but that had become rare over the past year or more. 

This article was first published on NYPost.com

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Used Car Prices Continue to Slide in October – The Detroit Bureau

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The price of used vehicles has dropped for the fifth consecutive month once October’s sales results are figured in, according to Manheim, which assembles the data for its Index from its used-vehicle auctions around the country.

Used vehicle prices fell for the fifth consecutive month in October.

Manheim reported wholesale used-vehicle prices — on a mix, mileage, and seasonally adjusted basis — dropped 2.2% in October from September. Used vehicle prices are one of the components of the U.S. Department of Labor’s monthly inflation report, which earlier this month indicated the high rate of inflation dogging the U.S. economy is slowing a bit.

Prices for both new and used vehicles remains high by historical standards.

Manheim Index points down

The Manheim Used Vehicle Value Index declined to 200 and is now down 10.6% from a year ago. The non-adjusted price change in October was a decline of 2.1% compared to September, moving the unadjusted average price down 9.3% year over year. 

All eight major market segments saw seasonally adjusted prices that were lower year over year in October. 

Compact cars had the smallest decline, at 6.1%, followed by vans and pickups, at 6.4% and 8.4%, respectively, Manheim reported. The data suggested consumers are looking for less expensive vehicles as an antidote to the sharply rising prices of both new and used vehicles, which have occurred over previous two years.

The latest Manheim Index indicates used vehicle prices fell in October.

Compared to September, six of eight major segments’ performances were down. Sports cars lost the most at 3.2%, followed by luxury cars at 2.7%. Four other segments lost between 2.4% and 0.8%, including pickup tracks. Full-size cars were up 4.5%, and vans were flat at zero percent.

Manheim also reported the average daily sales conversion rate increased to 51.8%, which was above normal for this time of year. The higher conversion rate indicated the month saw sellers with more bargaining power in October than what is typically seen for this time of year.

In October, Manheim Market Report, or MMR, values saw smaller-than-normal declines that were relatively stable during the month, culminating in a 2.2% total decline in the Three-Year-Old Index over the last four weeks. In the month of October, daily MMR Retention, which is the average difference in price relative to current MMR, averaged 98.2%, meaning market prices were below MMR values. 

Used vehicles still tough to find

The non-adjusted price change in October was a decline of 2.1% compared to September, moving the unadjusted average price down 9.3% year over year.

Jonathan Smoke, the chief economist for Cox Automotive, owner of the Manheim Auctions and Index, noted, “Even though used prices have come down some this year, it is still difficult to find a used vehicle without substantial mileage or maintenance concerns that would produce an affordable payment without other expense challenges.

“In today’s market, subprime buyers are mainly limited to vehicles that are 6-9 years old and with at least 75,000 to more than 120,000 miles,” he added.

Smoke noted the natural loss of vehicles that occurs over time. “Go back more than eight years, and you will find that fewer vehicles were manufactured during and coming out of the Great Recession,” he said.

As the pandemic and supply chain issues limited new-vehicle production, primarily the most profitable vehicles and the most expensive configurations have been produced. Now throw in restrictive rates for the foreseeable future and the industry must contend with a buying pool that will only reinforce a focus on wealthy consumers, Smoke said.

“The used-vehicle market offers no affordable refuge. Since yesterday’s new market supplies the used market, affordable alternatives will also be limited. Like the new market, with the rate moves this year, the used-vehicle market is starting to see similar shifts in buyers, with higher-income consumers gaining share and subprime increasingly being priced out,” he said.

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These 10 used cars have held their value the most – CNBC

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martin-dm | E+ | Getty Images

Sports cars, Jeep models among slowest to depreciate

The top three cars that have held the most value over the last five years are the Jeep Wrangler, which showed the least depreciation (7%), followed by the Jeep Wrangler Unlimited (8.7%) and the Porsche 911 (14.6%), according to the iSeeCars analysis.

“The relative scarcity of late-model used cars due to pandemic-related new car production disruptions has kept used car values high for more than a year,” said Karl Brauer, executive analyst for iSeeCars.

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Used car prices are falling fast, and down 15% from their peak – Axios

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Data: Cox Automotive; Chart: Axios Visuals

Sky-high used car prices are losing altitude fast.

Why it matters: The remarkable climb in used vehicle prices was an early and ultra-visible driver of COVID-era inflation.

State of play: The Manheim Used Vehicle Value Index, a gauge of wholesale market prices for used vehicles, dropped for the fifth-straight month.

  • Prices are down more than 15% since they peaked in January at an average of nearly $24,000.
  • Wholesale prices are typically a leading indicator of the prices consumers pay, so this suggests better deals on vehicles could be coming to auto lots soon.

Yes, but: While prices for goods — such as used cars — were the key drivers of inflation in 2021, more recently, costs for services and housing are the driving force behind persistently fast price increases.

The bottom line: The inflation fight continues. But with car prices dropping, and house prices starting to crack as well, it suggests the Fed now has some serious traction in its fight to stabilize prices.

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Wholesale used car prices plummet as retail prices soar – The Hill

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The wholesale price of used cars is falling off a cliff while the retail prices that car shoppers are paying is way up, suggesting dealers are making a killing while consumers are taking a bath.

Used car prices declined 2 percent from September in the first half of October and are down 10.3 percent from a year ago, according to The Manheim Used Vehicle Index published on Monday.

Wholesale used luxury car prices are down 13.5 percent while used sport utility vehicles are down 12.3 percent and pick-up trucks are down 8.4 percent.

Meanwhile, the retail price that car shoppers are paying for used cars has increased 7.2 percent since last year, according to the Department of Labor’s latest consumer price index.

The fact that dealers are paying less for cars than they were a year ago while shoppers are paying more suggests that dealers are holding onto the difference and are driving inflation in the used car market, economists say.

“Dealers don’t have to pass it on. They can make bigger profits,” Claudia Sahm, a former Federal Reserve banker and founder of Sahm Consulting, said in a message to The Hill.

“At the end of the day, inflation and how much prices go up – these are decisions made by businesses. Inflation does not just come down from on high,” she said in an interview. “You’re in a capitalist economy, so whether it’s a small business or corporation, they get to decide when they pass a price increase or a price decrease on.”

“The Fed knows that import prices are falling, producer prices have really decelerated overall, wage growth has slowed down some though there are still labor costs, but disinflationary factors will eventually show up in consumer prices,” she added.

Economist Dean Baker of the Center for Economic Policy and Research (CEPR) said the difference between wholesale and retail prices in the market for used cars “likely is in part margins, but also a lag.”

“If a dealer paid $5000 for a car that today would sell for $4500 in the wholesale market, they probably will still look to get a price that compensates them for the $5000 they paid. That might mean there is a month or two for prices in the retail market to adjust to prices in the wholesale market,” he told The Hill.

More broadly, however, economists have noted increasing profits during the pandemic.

“It is … important to remember that we had a large shift of income shares from wages to profit in the pandemic. We can argue whether this was due to the exploitation of monopoly power or simply an outcome of shortages created by the pandemic and the war [in Ukraine], but the shift to profits is undeniable,” Baker wrote in a recent blog post.

Mark Schirmer, director of public relations with Cox Automotive, which publishes the Manheim Used Vehicle Index, said he expects auto prices to decline in the short term, with retail prices following drops in wholesale prices, but that auto prices will remain elevated over the longer term.

“We still think that with new vehicle inventory still low, we’re not expecting retail prices or wholesale prices to crash, but we certainly expect for them to come down some,” he said in an interview with The Hill.

“We’re not expecting a huge correction. They’re going to stay historically elevated for a while,” he added.

The marked contrast in the directions of pricing trends in the used car market comes as the Federal Reserve is hiking interest rates in order to bring down inflation. Federal Reserve officials say that by increasing interest rates, they will bring down demand and that lower demand will bring down prices.

“In the United States, we … have a demand issue,” Federal Reserve chair Jerome Powell said during a press conference last week at which he announced another three-quarter percent rate hike. “We’ve got an imbalance between demand and supply, which you see in many parts of the economy. So, our tools are well suited to work on that problem.”

But some economists are asking the Fed for further details about how they expect these dynamics to work.

“Powell’s public remarks offer little insight into how he expects higher rates to tame inflation,” UBS economist Paul Donovan wrote in the Financial Times last week. That’s important because “today’s price inflation is more a product of profits than wages.”

“Companies have passed higher costs on to customers. But they have also taken advantage of circumstances to expand profit margins. The broadening of inflation beyond commodity prices is more profit market expansion than wage cost pressures,” Donovan wrote.

Commodity price increases, especially in the energy sector, are driving inflation at the international level. The United Nations Conference on Trade and Development says that current inflation “derives largely from cost increases, particularly for energy, and sluggish supply response” that has been “amplified by price-setting firms in highly concentrated markets raising their mark-ups.”

But at the national level, the Fed’s “demand issue” has economists looking at the labor market as well as consumer spending habits to predict when the central bank will stop raising interest rates.

“The most important argument against further rounds of aggressive rate hikes by the Fed was in the wage data. After seeing moderate growth in the hourly wage in both August and September, we got another moderate number for October. If we take the annualized rate over the last three months, it comes to 3.9 percent, that’s down from an annual rate of more than 6.0 percent last fall,” CEPR’s Baker wrote.

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Kansas City Federal Reserve president Esther George said in an interview with National Public Radio (NPR) last week that excess demand in the economy is also due to extra household savings.

“We see today that there is a bit of a savings buffer still sitting for households, that may allow them to continue to spend in a way that keeps demand strong,” George told NPR. “That suggests we may have to keep at this for a while.”

Updated at 5:02 p.m.

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How to Finance a Used Car – Consumer Reports

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Used Cars And Trucks May Be More Affordable In Q4, But Still Expensive – Forbes

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Used-car values could moderate in the next few months, but remain at a much higher level than before … [+] the pandemic.

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Used-vehicle values are down over the last few consecutive months, although they’re still far higher than they were before the COVID-19 pandemic, and there are a lot of reasons to expect used-vehicle prices will remain elevated, possibly for years to come, analysts said.

The good news is, used-vehicle prices are beginning to conform to a normal seasonal pattern, where used-vehicle prices peak in the spring, around tax-rebate time, and then lose value as the year progresses.

For consumers, there’s at least some hope for used-vehicle shoppers that there could be some relative bargains in late 2022, analysts said.

“This fall is going to be inventory cleanup time,” as dealerships sell off used vehicles they stocked up on earlier, said Jonathan Smoke, chief economist for Cox Automotive.

“I expect retail to show more declines in Q4, than we’ve seen all year,” he said of used-vehicle values, in a conference call earlier this month.

For a while last year, there was so much demand relative to supply that used vehicles were actually appreciating in value, something completely contrary to historical experience.

This year, according to used-vehicle auction data from ADESA U.S. Analytical Services, wholesale prices at dealer-only auctions have declined through September 2022 for four months in a row, since a seasonal peak in May.

In September, used-vehicle, wholesale auction prices averaged $15,543 per vehicle — down 1.3% vs. August 2022, and flat vs. September 2021. However, that’s up 39.3% vs. pre-pandemic September 2019, said Tom Kontos, chief economist for ADESA Auctions.

It’s obvious how the pandemic, and a not-unrelated shortage of computer chips, have hurt new-vehicle sales and production. What’s less obvious is the follow-on effect on used vehicles.

Early in the pandemic, North American auto assembly plants were closed for weeks. At the same time, dealership showrooms in markets representing a majority of new-car sales were closed, to try and limit contact and contain the pandemic. Those closures were followed by a slow and lengthy restart.

Besides interrupting new-car sales, those closures also hurt used-vehicle availability in a couple of ways. One, with fewer new vehicles available, fewer customers could trade in their used vehicles for new ones. Two, what used vehicles were available experienced greater demand, as some new-car shoppers settled for used. Those factors drove up used-vehicle prices, too.

Finally, and most obviously, the slowdown in new-vehicle production causes an exactly equal shortage of used vehicles in the future. Fewer new 2020 models built in 2019 and 2020 means fewer used 2020s, forever.

Meanwhile, higher interest rates logically will drive even more new-car shoppers to seek used cars instead, to find an affordable alternative. That’s going to support higher used prices, too.

So, used-vehicle prices may moderate, as new-vehicle availability improves, and as more trade-ins become available for purchase as used cars. But used-car prices are not likely to experience a sudden drop.

Source: https://news.google.com/__i/rss/rd/articles/CBMid2h0dHBzOi8vd3d3LmZvcmJlcy5jb20vc2l0ZXMvamltaGVucnkvMjAyMi8xMC8zMS91c2VkLWNhcnMtYW5kLXRydWNrcy1tYXktYmUtbW9yZS1hZmZvcmRhYmxlLWluLXE0LWJ1dC1zdGlsbC1leHBlbnNpdmUv0gF7aHR0cHM6Ly93d3cuZm9yYmVzLmNvbS9zaXRlcy9qaW1oZW5yeS8yMDIyLzEwLzMxL3VzZWQtY2Fycy1hbmQtdHJ1Y2tzLW1heS1iZS1tb3JlLWFmZm9yZGFibGUtaW4tcTQtYnV0LXN0aWxsLWV4cGVuc2l2ZS9hbXAv?oc=5