Used car prices are currently near historic highs, but a significant decrease in the cost of the average used car could be coming soon.
Americans paid more than $27,000 for the average used car last month — a return over the $27,000 line for the first time since last December.
Wholesale costs down almost 10% year-over-year
But car dealers are paying significantly less at auction for the used cars they sell later. According to the Manheim Used Vehicle Value Index, wholesale auction prices in the first 15 days of June were down 9.4% from one year ago.
The index is a product of Kelley Blue Book parent company Cox Automotive.
A decrease in wholesale prices usually means a reduction in retail prices about six to eight weeks later. So the numbers likely mean retail prices will drop significantly later this summer.
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Early June typically sees a slight price drop, but this year’s decrease has been more dramatic.
The changes are more significant for some types of cars than others. Pickups and vans, at 6.2% and 7.8%, respectively, lost less than the overall industry in seasonally adjusted year-over-year changes. The remaining segments lost between 9.6% and 12.5%, with sports cars losing the most.
Also see: What do car dealers have to be worried about? Plenty, survey says.
Longer term, prices likely to remain high
However, the picture remains unusually bleak for used car shoppers in the long run. Manufacturers built fewer cars during the height of the COVID-19 pandemic. That will restrict the number of vehicles entering the used car market for years, keeping prices high.
Consumers, however, are feeling better about the economy overall.
With the risk and uncertainty for the economy resolved with the increase in the debt ceiling in early June, measures of consumer sentiment are improving in June. The initial June reading on Consumer Sentiment from the University of Michigan increased by 7.9% to 63.9% as views of both current conditions and future expectations increased. The median expected inflation rate over the next year declined to 3.3% from 4.2% last month, and the longer-term view declined to 3.0%. Consumers’ opinions of vehicle buying conditions improved to the best level since February and were much better than a year ago.
This story originally ran on KBB.com.
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