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By Wolf Richter for WOLF STREET.
Prices of used vehicle sold at auctions across the US barely dipped in September after having jumped for two months in a row.
Not seasonally adjusted, wholesale prices inched down by $26 on average per vehicle, or by 0.1%, in September from August, to $18,693, after having jumped by $513 in the prior two months combined, according to the Manheim Used Vehicle Value Index, which is adjusted for changes in mix and mileage (blue in the chart below).
Wholesale prices usually decline in September, but they declined less this September than they normally do in September. In 2019, for example, before all the pricing craziness started, wholesale prices fell 0.7% in September from August, compared to the 0.1% decline this September.
“The new normal is likely that we continue to see wholesale depreciation, but it may be more muted than the market is accustomed to for the rest of the year,” Manheim said. It runs about 8 million vehicles a year through its auction lanes.
Year-over-year, prices were down 4.9%. This compares to the double-digit drops in the first five months of 2024 as part of the historic plunge in prices.
Wholesale prices have now given up nearly 50% of the pandemic spike, and it appears that this may be about as good as it gets for car buyers.
Seasonally adjusted, wholesale prices fell by $89 on average per vehicle, or by 0.5% in September from August, to $18,565, after the $720 jump in the prior two months combined. In September 2019, seasonally adjusted prices fell by 1.0%, double the rate of this September’s decline.
This less than normal dip in September and the two months in a row of substantial price increases indicate that used-vehicle wholesale prices have been stabilizing, pointing at a potential end of the historic plunge, and that retail prices, which lag wholesale prices by a few months, may fade in their substantial contribution to pushing down CPI inflation.
Dealers buy at these auctions to replenish their used-vehicle inventories. Supply comes from rental fleets that sell some of the vehicles they pull out of service, from finance companies that sell their off-lease vehicles and repos, from corporate and government fleets, other dealers, etc.
The Three-Year-Old Index decreased by 1.6% over the last four weeks, which was less than the typical pre-pandemic decline for this period of 1.8% for the same four weeks in five years from 2014 to 2019, according to Manheim, a unit of Cox Automotive.
Supply in the three-year-old segment is constrained by the lower influx of off-lease vehicles whose 3-year leases are now maturing. Leasing activity plunged in 2021 to 2023, amid new-vehicle shortages and uncertainties about lease-end residual values due to the insane spike of used vehicle prices at the time. This sharp drop in leasing activity during those years now translates into a sharp drop in lease maturities, and a sharp drop of supply to the three-year-old segment going through auctions. This will drag into 2025 and 2026.
The average daily sales conversion rate in September, at 60.3%, was higher than normal for September, according to Manheim — same scenario that had also played out in prior months, amid strong demand from dealers who want to replenish their used-vehicle inventories, and tight supplies of used vehicles. Over the previous three years, the conversion rate in September averaged 53%, according to Manheim.
Used-vehicle retail inventories remain tight.
Retail inventory of used vehicles at the start of September, at about 2.18 million units, was down from the prepandemic range of 2.8 million to 3.0 million vehicles, according to separate reporting by Cox Automotive.
A very basic issue for used-vehicle supply in 2024 through 2026 is that new-vehicle production plunged in 2021 and 2022 due to the semiconductor shortages.
Over the seven quarters that the chip shortages hit vehicle production and sales – from Q2 2021 through Q1 2023 – automakers sold 6 million fewer new vehicles than over the seven-quarter period before the pandemic. These 6 million vehicles that haven’t been built cannot provide supply to the used vehicle market. And that issue of the missing 6 million vehicles won’t just vanish overnight.
But used vehicle retail sales, in terms of the number of units sold, rose 9% year-over-year in September, according to preliminary figures from Cox Automotive. Dealers are buying at auction to restock their retail inventory, amid tight supply. And this appears to be putting a floor under the historic price plunge of used vehicles.
Prices of used EVs and ICE vehicles.
EV wholesale prices, after spiking by 5.1% in August from July, fell by 1.1% in September (red in the chart below, not seasonally adjusted).
ICE-vehicle prices, after rising 2.0% in August from July, dipped 0.1% in September (blue, not seasonally adjusted).
Used EV prices had spiked by an insane 145% from January 2020 through July 2022 when Tesla-flipping was a thing. Tesla has largely killed Tesla-flipping by ramping up production and cutting prices starting in 2022.
Used ICE vehicle prices had spiked by less than half that rate, by a still crazy 64% from January 2020 through July 2022.
EVs have given up about 53% of their 145% spike; ICE vehicles have given up 46% of their 64% spike. And so EV prices remain far higher in relationship to ICE vehicle prices than before the pandemic, and are still far more out of whack than ICE vehicle prices:
Since January 2020, EV wholesale prices are still up 68%. ICE-vehicle prices are up 35%:
Wholesale prices in some of the most popular segments:
Prices of SUVs rose. Auction prices of all types of SUVs in aggregate, from compact to full-size, inched up 0.2% in September from August, the third month in a row of increases, to $20,411, down by 5.2% year-over-year and have given up 49% of their pandemic spike:
Compact car prices rose: Auction prices of compact cars rose 1.1% in September from August, the third month in a row of increases, to $9,915, and are down by 6.0% year-over-year, and have given up 61% of their pandemic spike:
Pickup truck prices declined 0.6% in September from August to $26,235, and are down 7.3% year-over-year, and have given up 40% of their pandemic spike:
Midsize car prices fell 1.5% in September from August to $11,946, down by 6.3% year-over-year and have given up 59% of their pandemic spike:
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The post More Evidence this May Be the End of the Historic Plunge of Used Vehicle Prices that Had Pushed Down CPI appeared first on Energy News Beat.
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