Used and new vehicle prices have been on a downward trend in recent months, according to data from the Consumer Price Index (CPI). The car market is slowly returning to normal after experiencing pandemic-related inflation. In July, used car prices fell 2.3% compared to the previous month and 10.9% compared to the previous year. New car prices also decreased by 0.2% in July and 1.4% from the prior year. These price decreases have brought used vehicle prices down by 19.4% from their peak in February 2022.
This significant decline comes after a period of rapid price increases. Used car prices saw an annual increase of more than 40% in June and July 2021, as well as in January and February 2022. However, even with the recent decreases, used car prices and truck prices are still 16.9% higher than they were in July 2019.
The drop in vehicle prices can be attributed to a buildup of inventory in the market. As new car inventory levels have normalized, discounts and incentives have been offered on older inventory, leading to lower prices for both new and used vehicles. Auto research firm Edmunds explains that the decline in new car prices has had a corresponding effect on the values of newer used vehicles.
While falling prices and rising inventories might cause concerns for dealers, automakers like Ford, GM, and Toyota have still experienced strong sales at the dealer level. GM, in particular, is expecting only modest drops in average transaction price. This suggests that despite the lower prices, consumer demand for vehicles remains robust.
In July, the Manheim used vehicle value index (MUVVI) rose slightly compared to June, indicating increased demand for used cars. This index tracks prices paid by dealers at the wholesale level and often reflects trends in the consumer market. Analysts at Manheim anticipate that a smaller quantity of leased vehicles entering the used market might lead to higher prices in the future. The question remains whether this will be a temporary blip or a sustained upward trend in used vehicle prices.
In summary, the recent decline in used and new vehicle prices is a positive development for buyers, signaling a return to normalcy in the market. The increased inventory and corresponding discounts have contributed to these price decreases. However, strong sales at the dealer level indicate that consumer demand for vehicles remains strong. The future direction of used vehicle prices will depend on various factors, including the quantity of leased vehicles entering the market.