Aug 9, 2021 - Economy

Cars are back to being depreciating assets

Data: Manheim; Chart: Axios Visuals

Used car prices continue to descend from their eye-popping levels.

Why it matters: Protracted supply chain issues caused a shortage of new cars, and in turn used cars, as demand boomed.

By the numbers: According to the Manheim Used Vehicle Value Index, the wholesale price — or the price used car dealers pay — in July fell by 2.6% from June. This follows a 1.3% decline the month prior.

What they’re saying: Now that wholesale prices have edged down for two months, consumers should start to see prices normalize at the retail level, which is what a consumer pays a dealer for a used car.

  • "Retail prices typically follow wholesale prices by about six weeks because many dealers price inventory based on cost," Cox Automotive chief economist Jonathan Smoke tells Axios. "We’ve observed retail prices rolling over in July—precisely 6 weeks after wholesale prices started to fall."

Yes, but: Don’t expect prices to tumble.

  • "I think consumers will notice that prices are no longer going up, but retail prices are sticky and likely won’t fall as fast as wholesale prices," Smoke says. "That said, we are not expecting any price corrections. We still have low inventories and extremely low inventory of new, which drives up demand for used."

What to watch: Upcoming consumer price updates could begin to reflect the cooling in prices. The July CPI report will be released on Aug. 11.

The bottom line: "No one should expect a bargain on a car any time soon, but what we can expect is no more abnormal appreciation," Smoke says.

  • "Vehicles are a depreciating asset," he adds.
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