Posted on 11/07/2022 10:23:10 PM PST by SeekAndFind
With soaring borrowing costs, the Federal Reserve has slammed the brakes on the once-booming used car market. The latest data on wholesale used-vehicle prices show October's decline on a year-over-year basis was the worst since the financial crisis over a decade ago.
The Manheim Used Vehicle Value Index for October declined to 200, or about 10.6%, the worst decline since December 2008 when the global economy was melting down (and the 5th largest decline ever)...
The Fed's rapid pace of rate hikes this year is slowing demand, as Edmunds data showed the average annual percentage rate on used-car loans was a staggering 10% for some borrowers.
Average financing rates right now:
New cars: 6.27%
Used cars: 10.33% !!!!(source: Edmunds) — CarDealershipGuy (@GuyDealership) November 2, 2022
The index that tracks the price of what car dealerships pay at auto auctions has slid for 8 of the nine months and declined for the 5th straight month.
Since the Fed hasn't blinked (yet) and borrowing costs continue to skyrocket, wholesale used-vehicle prices could cool significantly more.
The slump in wholesale used-vehicle prices could be a harbinger of when the Fed begins to hike interest rates at a slower pace.
"Used car prices, once considered the barometer of how bad inflation has become, are now moderating. In fact, they have been dropping for a year. As supply-chain shortages moderate, this closely-watched gauge will likely continue to decline, helping curb overall inflation. The move may also support the narrative that the Fed can scale back its rate increases, boosting stocks," Bloomberg's MLIV Vincent Cignarella wrote.
The bad news about sliding wholesale used-vehicle prices is when they crush the retail market, there will be so many new buyers underwater in their vehicle loans.
Signs of distress are already materializing for consumers with subprime and deep subprime credit scores, according to Mish Talk.
As delinquencies rise and the layoff cycle begins, the repossession wave has already started.
The Car Market Is Collapsing 🚨 🚨 🚨
🔊sound ...🧐 pic.twitter.com/apxRchrNwE — Wall Street Silver (@WallStreetSilv) November 5, 2022
And the used car bubble could cascade into the structured product segment of the financial market as big banks hold a lot of consumer debt.
Bullish for CLOs... pic.twitter.com/mrd5XtBjPq — Wall Street Bearish Bull (@govadm) November 7, 2022
Meanwhile, shares of Carvana crashed 24% Monday after the company missed Wall Street's top- and bottom-line expectations for the third quarter as the demand for used cars plummeted.
Last month, the largest US chain of car dealerships, AutoNation, whose CEO, Mike Manley, warned the used car market showed signs of imploding.
Separately, Hertz Global Holdings reported its third-quarter earnings that showed depreciation costs were rising due to its used car prices at auction fetching lower values.
Readers may recall it was back in April when we asked a straightforward question: "Are Used Car Prices About To Peak For Real This Time?"
... and with a little bit of time, we were right. We expect deals, especially in the used car luxury segment, to materialize in 2023.
It seems that few people can afford a car used or otherwise.
Anyone who’s been on a car lot in the last couple years and has a brain knows that there’s been a bubble in vehicle prices. As I mentioned in another thread, I was at a CarMax recently and they’re trying to get $20k-$22k for 3-year-old Camrys and Accords with 50k miles and that originally stickered for $25k-$26k. That’s insanity.
If my car lasts until 2023, things will look up for me.
I bought two new vehicles in my life. Both mini-vans when I was hauling 5 little ones. I currently drive a 2003 Deville. 65,000 miles, bought it for $3,500. Might be time to start shopping for a newer model.
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BidenDepressionII2023
Almost all economic indicators are pointing in directions we would certainly not want to see but they’re adding up quickly.
The overpriced bubble is bursting. Finally.
The downside is that I couldn’t trade my truck on a downpayment for an overpriced, tiny house any more.
Good cause my rib needs one
Also, I think a lot of the influence on used car prices stemmed from the fact that there was basically a shortage of new cars. My nearest dealer was parking F-150s at a steep diagonal pitch along the front of the lot to make it look full, but the inventory showed that there were not a lot of vehicles in stock.
“How did you go bankrupt?”
Two ways. Gradually, then suddenly.”
― Ernest Hemingway, The Sun Also Rises
Does this mean that car makers will be lobbying for another Cash for Clunkers payoff?
You’re forgetting about the Red Wave later today. BidObamanation may have planned it, but Trump is working in our favor.
My mom sold her 2017 Camry for more than she paid. 22K vs 19K, only had 11,000 miles.
Very nice. Something is seriously warped with the vehicle market when it’s possible to do that.
About 15 months ago, the nation was clamped down and not many people traveling and renting cars. The rental companies off loaded a lot of their higher mileage cars to sell as used cars.
I bought one for my granddaughter for a really good price, roughly 30K miles and two years old. Much of it still under warranty as far as critical systems.
But those who finally can, will probably thank the GOP for lower prices.
My mom sold her 2017 Camry for more than she paid. 22K vs 19KSo simple logic says all she can buy with her now 22K is her old car back.
Should be some good deals on John Voight Lebanons right now.
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