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.
And I hope it leaves a big red pool on Wednesday.
When times are tough, people consider used cars before new
Today, with astronomical new car prices, the knee jerk to used cars is much quicker.
This would mean less new cars sold... and if those in charge want to help their buddies in the auto union then it’d make sense to jack up used car interest in the hopes of driving buyers into the arms of the new car dealers.
Unfortunately, those new car prices are soooo insane, all that’ll happen is maybe introduce a small decrease in use cars. The number of new cars sold to non-govt groups will remain the same if not slightly down (as we get deeper into the democrat years)
I bought a low miles 2009 Dodge Challenger SRT8 in early 2020 for $15K. I sold it in mid 2021 for $22K, after putting 10K miles on it. I’ll start looking for a 2015 model shortly, when the dealer lot is packed to the gills with them, and won’t spent more that $15K cash.
My mom sold her 2017 Camry for more than she paid. 22K vs 19K, only had 11,000 miles.
More dollars but far weaker dollars thanks to joeflation.
Cheers! 6 speeds here too.
I drive a Nitro with 194,000 on it and still running strong. and a 96 Pu with 400K on it. Although the PU like gas too much it is still good.
Used car prices are ridiculous right now, then tack on 10%+ APR and nope..
Yep it’s been a huge bubble for a few years now…
Used cars selling for more than prices they sold for new….
Nope..
Lack of supply of new vehicles created an ridiculous bubble…
No one should be shocked it’s ending
Since 1991 I have bought a 91 Wrangler, a 96 Taurus, a 66 landcruiser, and a 2001 lexus suv. I still have the lexus and the landcruiser…guess I’m old fashioned
Here in Virginia dealers put a "market adjustment" charge on the window sticker for new cars. I've seen them charge anywhere from $4K to $12K extra just because of the market. Car lots are mostly empty here. There are almost no new cars. Lots are full of cars that were traded in. New car lots have become used car lots. When the pendulum shifts I may go search for a deal.
I have a 2008 turbo 4 banger bought in mid 2009 with a nice discount. I have about 95K miles on the odometer. The engine is rated at 290HP. I'll goose it every once in awhile, but mostly drive it normally. At regular highway speeds in 5th gear, the engine is running about half the the max rpm's. I haven't had any expensive repairs that I had to pay for. I had an all wheel drive pump go bad a few years ago. It was a $2K repair, but covered by a hidden warranty.
One thing I noticed is there aren't any market adjustment stickers on the more expensive cars. It has been about 5 months since my last service appointment, so I am not up to date on current pricing trends. $5K seems to be the norm when roaming the lots and listening in sales rep phone calls.
👍👍
I’ve been driving a Dodge Intrepid since 2000, looking for a nice ‘04 Chrysler 300M.
Good to know how it worked for you. I’m sure a lot depends on whether the engine is run to its limits a lot. That applies to any engine, turbo or not.
The manual says I need to have the car serviced more often if I drive it aggressively or put a bunch of miles on it between service periods. I was fairly religious about taking the car in for service while it was under warranty, but let it slip for a month or so now that it been off warranty..
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