Used car prices are falling as sales soften amid high interest rates

DETROIT – Wholesale used vehicle prices reached their lowest level of the year in May, as sales fell amid high interest rates and inflated retail prices.

Cox Automotive reported Wednesday a 2.7% decline from April to May in its Manheim Used Vehicle Value Index to 224.5. It marks the second consecutive monthly decline and the index’s lowest level since 219.3 in December.

The index, which tracks vehicles sold at its U.S. wholesale dealership auctions, remains elevated from historical levels but is expected to continue to decline this year amid improving new vehicle inventory levels and high interest rates that appear to be scaring off consumers.

“Taking a longer view, May’s year-over-year decline accelerated from April and March; however, the rate of decline might slow over the next several months as we encounter the lower prices seen at auction from May through November last year,” said Chris Frey, Cox senior manager of economic and industry insights, in a release.

Used retail sales are estimated to have been down 11% year over year in May, Cox reports. The notable decline comes as many Americans, especially those with lower credit ratings, are being priced out of the market and repairing their vehicles instead of replacing them.

The declines in sales and wholesale prices signal the used vehicle market is weakening, according to Cox. That’s not good for U.S. auto dealers but a win for the Federal Reserve’s battle to taper inflation by ratcheting up interest rates.

Used vehicle prices have increasingly become a barometer for inflation since early last year when the Biden administration blamed the market for rising inflation rates.

Used vehicle prices have been elevated since the early days of the coronavirus pandemic, as the global health crisis combined with supply chain issues caused production of new vehicles to sporadically idle. That led to a low supply of new vehicles and record-high prices amid resilient demand. The costs and scarcity of inventory led consumers to the used vehicle market, boosting those prices as well.

Continued declines could help bring used vehicle pricing down for consumers, since retail prices traditionally follow changes in wholesale prices. However, that has not been the case thus far, as the average retail listing price for a used vehicle moved 0.8% higher over the last four weeks, Cox reports.

Cox reports the average listed price of a used vehicle was $26,969 in April, the most recent data available.