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What’s Going On in the Used Car & Truck Market?


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2018 Aug 9, 4:04pm   5,033 views  33 comments

by MisterLefty   ➕follow (1)   💰tip   ignore  

As “affordability challenges” hit new vehicles, consumers switch to used, prices spike to record, inflation psychology sets in.

For a brain-twisting phenomenon, amuse yourself for a moment with the Consumer Price Index for used cars and trucks. It shows that there has been 0% inflation since 1994 in used cars and trucks, despite actual prices having soared. So, yes, the CPI for used vehicles in June, as reported by the Bureau of Labor Statistics, fell 0.7% from June a year ago and is where it had been in April 1994.

This absurdity of 0% inflation since 1994 is caused largely by the BLS’s relentless and passionate application “hedonic quality adjustments,” which adjust prices for the costs of a model’s new equipment and quality improvements, such as, to quote: reliability, durability, safety, fuel economy, maneuverability, speed, acceleration, deceleration, carrying capacity, and comfort or convenience.

For a more sobering sense of reality, let’s head to the Manheim Used Vehicle Value Index. Manheim is the largest auto auction company in North America. Annually, about 8 million used vehicles – rental cars, lease turn-ins, repos, etc. – are sold at its physical and online venues. This index, based on these wholesale prices, is adjusted for mix, mileage, and seasonality.

On this basis, used vehicle prices jumped 5.1% in July from a year ago. The index, at 136.9, hit “the highest level ever for the series,” Manheim said. And look at that spike:

The index is up 16.4% from January 2010. Over the same period, the CPI for used cars and trucks, pictured at the top, fell 4.3%.

The index stayed in the same range between 2010 and April 2017, and suddenly, in May 2017, BAM. This was before the hurricanes. Then in late August and September, Hurricanes Harvey and Irma created a lot of “replacement demand” at auctions around the country. But that petered out sooner than expected, as there was less replacement demand than hoped for. And by November last year, auction prices were beginning to revert to the mean (the sharp drop in the chart above).

That drop bottomed out in March 2018, and prices have been spiking since. The increases in April and May were ascribed to seasonality, but then came June and July. Manheim:

[T]the abnormal summer bounce that started in June continued and strengthened in July. Correspondingly, the best-selling cars at Manheim are worth more today than a month ago, and many vehicles are worth more now than a year ago. Price comparisons to last year will be tougher through the rest of the year; but recent weekly increases were higher than last year, keeping current price performance ahead of last year.
And here’s why: High prices of new vehicles – “affordability challenges,” as Manheim calls it – trigger substitution:

The strange summer price appreciation in used cars is partly a function of a strong economy at its peak, with mounting affordability challenges for the consumer that favor growth in used vehicle sales at the expense of new. These conditions have supported strong used vehicle prices for over a year.

And inflation psychology is setting in with consumers:

The catalyst for even stronger price movement this summer is the fear of import tariffs’ leading to higher prices in the future. Higher prices and the related declining level of supply create a psychological feedback loop for consumers, encouraging buying now with the expectation that prices may be higher later.

The price increases differ by market segment, but according to Manheim, “more affordable vehicles are seeing the greatest increases in values.” Compact cars and midsize cars had the largest price increases, while prices for luxury cars were just barely in the positive.

Year-over-year price changes by major market segment:

Total: 5.1%
Compact cars: 5.2%
Midsize cars: 7.2%
Luxury cars: 0.2%
Pickups: 3.3%
SUV/crossovers: 4.5%
Vans: 3.4%
In terms of sales at the retail level, by dealers as well as private parties, July was up 3% year-over-year, Manheim said, citing estimates by Cox Automotive, which owns Manheim, Kelley Blue Book, Xtime, and Autotrader.com. It estimates that in July the seasonally adjusted annual rate (SAAR) of sales was 39.2 million vehicles – meaning that at this pace, total used vehicle sales for the 12-month period would be 39.2 million – “the strongest July reading in six years.”

This contrasts with new-vehicle deliveries, which fell 3% in July from a year ago, and were running at a pace of 16.7 million SAAR, according to Manheim’s estimates.

The industry now has to “estimate” monthly new-vehicle deliveries after GM stopped reporting its deliveries in April; GM accounts for over 17% of the new-vehicle market. And as of April, the industry has to fill that hole with estimates. Hence Manheim’s “estimates.”

The new-vehicle market, in terms of the number of deliveries, peaked in 2016 and declined in 2017. The earlier part of this year was slightly stronger, but now the market is losing steam again, as more and more consumers – including many subprime borrowers that are getting locked out of the new vehicle market – switch to used vehicles.

GM, Fiat Chrysler, and Ford all got ugly in unison, in one day, something we haven’t seen since the Financial Crisis. Read… Carmageddon in Detroit

https://wolfstreet.com/2018/08/09/whats-going-on-in-used-car-truck-vehicle-market-prices/

Comments 1 - 33 of 33        Search these comments

1   Evan F.   2018 Aug 9, 5:51pm  

APOCALYPSEFUCKisShostikovitch says
Two words:

Police Auction.

Only place you need to go for an affordable car

Police auctions are shady AF. You don't know what kind of bullshit those cars have been subjected to. I do think fleet auctions are worthwhile though. Got our Sienna for like $6k under market that way.
2   Booger   2018 Aug 9, 5:52pm  

MisterLefty says
For a more sobering sense of reality, let’s head to the Manheim Used Vehicle Value Index. Manheim is the largest auto auction company in North America. Annually, about 8 million used vehicles – rental cars, lease turn-ins, repos, etc. – are sold at its physical and online venues. This index, based on these wholesale prices, is adjusted for mix, mileage, and seasonality.

On this basis, used vehicle prices jumped 5.1% in July from a year ago. The index, at 136.9, hit “the highest level ever for the series,” Manheim said. And look at that spike:

The index is up 16.4% from January 2010. Over the same period, the CPI for used cars and trucks, pictured at the top, fell 4.3%....


Even that 16.4% price increase over more than 8 years seems low.
3   Tenpoundbass   2018 Aug 9, 5:53pm  

The used car market is 1000 times better than it was back in 2014.
A total shit box that was going to blow a motor next month was going for $4500.00

https://miami.craigslist.org/search/mdc/cta

There's plenty of affordable cars if I needed a car today, and didn't have much money.

After Cash for clunkers There wasn't much incentive to buy a 5 year old car vs a brand new one. There were $18,000 5 year old Sedans on every Used car lot. Of course the junk yards were paying $1200 for junked cars. A junked car in your drive way was enough equity for a down payment for a car. Today it's back to you're lucky if they give you $35-$75 for it. Also cash for clunkers cleared out all of the cheap cars, now there's a new huge inventory. I've been leasing a new car every two years as most car buyers the last 10 years has been doing. I contributed at least 3 more used cars to the market than I would have if I was buying new cars.
I wonder how the tariffs are playing out in the new junk prices I haven't looked in a year.
4   MrMagic   2018 Aug 9, 5:57pm  

MisterLefty says
On this basis, used vehicle prices jumped 5.1% in July from a year ago. The index, at 136.9, hit “the highest level ever for the series,” Manheim said. And look at that spike:

The index is up 16.4% from January 2010.


Can you say "Used Car Loans up to 84 months"?

People buy "payments", not "cars". Make the payments more affordable by extending the number of payments, and you can jack up the actual prices.

The "sheep" are really stupid and can't do math.

Hmmmm, I wonder what other major market operates the same way?
5   BayArea   2018 Aug 9, 9:20pm  

Not just used cars...

Houses, cars, sandwiches, jeans, fruit, everything has gotten out of this world expensive in recent years.
6   anonymous   2019 Feb 7, 5:59pm  

New Trucks are Hot, Prices Surge. But Cars Face Carmageddon. And Total Sales Fall

Americans love paying big profit margins for big equipment, and automakers love them for it, but total sales are declining, and something doesn’t add up.

The average transaction price of the vehicles sold by Fiat Chrysler jumped 5% in January compared to a year ago; for vehicles sold by Ford Motor Company, they rose 3.4%; for GM 2.4%; for Subaru 5.4%; for Toyota 3.0%.

For the industry as a whole, the average transaction price in January, according to estimates by Kelley Blue Book, jumped by $1,481, or by 4.2% from a year earlier, to $37,149. These are based on prices paid by retail customers before factory incentives are applied. The average transaction price for full-size pickup trucks jumped by 5.3%, or by $2,500 from a year ago, to nearly $50,000. But Americans spurned the $16,000 small cars.

This has been the theme year after year: higher, and sometimes much higher dollar amounts for new vehicles, particularly trucks, even as the overall number of new vehicles sold has declined.

New vehicle sales in the US peaked in 2016. For the three US brands, for Toyota, and some other automakers, they’d peaked in 2015. In 2018, new-vehicle sales, at 17.3 million vehicles, where below where they’d been in 2015 and below where they’d been in 2000.

While this has caused a bunch of gray hairs because over the longer term, this is not the way to go, automakers have focused on what Wall Street wants to hear – particularly Ford, whose sales dropped back into the 2013 range: We’re selling fewer vehicles but we’re charging more money for each of them, and so we’re not worried.

There are two factors at play in these rising average transaction prices.

Americans shift to “trucks” & love paying extra

This shift by US consumers away from lower priced and lower margin cars to higher priced and higher margin “trucks,” meaning compact SUVs (crossovers, which are based on cars), pickups, and SUVs, is not new. This trend has been going on for years. But it has reached a critical mass to where automakers are now shutting down car production plants in the US, to focus on making what sells.

And American consumers, often assumed to be astute and price sensitive, are favoring and buying the vehicles with the fattest profit margins: full-size pickups, which include the top three US bestsellers in 2018 with combined sales of over 2 million:
•#1 bestseller: Ford F-series, 909,300 trucks sold
•#2 bestseller: Chevy Silverado, 585,600 trucks sold
•#3 bestseller: Dodge Ram, 537,000 trucks sold.

The next three bestsellers are compact SUVs (“crossovers”):
•#4 bestseller: Toyota Rav4 (427,200);
•#5 bestseller: Nissan Rogue/Rogue Sport (412,100);
•#6 bestseller: Honda CR-V (397,000).

You have to go down to seventh place to get a car, the Toyota Camry (343,400), followed by the Honda Civic (325,800); and by the Toyota Corolla (303,732). Note that Ford sold three times as many F-series pickups as Toyota sold Corollas.

More including charts and other data lists: https://wolfstreet.com/2019/02/05/new-trucks-are-hot-prices-surge-but-cars-face-carmageddon-and-total-sales-fall/
7   MrMagic   2019 Feb 7, 8:19pm  

Kakistocracy says
Americans shift to “trucks” & love paying extra

This shift by US consumers away from lower priced and lower margin cars to higher priced and higher margin “trucks,” meaning compact SUVs (crossovers, which are based on cars), pickups, and SUVs, is not new. This trend has been going on for years. But it has reached a critical mass to where automakers are now shutting down car production plants in the US, to focus on making what sells.


See that. Trump has increased wages and put more money in people's pockets. Instead of buying a Toyota Yaris, they can afford to buy SUV's and Trucks!

@Kakistocracy , Isn't Trump amazing?
9   AD   2019 Feb 7, 9:17pm  

Ramsey is a media treasure. He has helped countless people from making dumb financial decisions.

I am surprised though that used cars would increase in price. I thought the younger generations do not want to own a car. Most choose to live in an area with public transportation, as well as use Uber or use ZipCar.
10   RWSGFY   2019 Feb 7, 9:18pm  

MAGA says

www.youtube.com/embed/0a-RbJKTQqo


OK, the truck is stupid, but what's wrong with $175K house on their $55K income? The monthly payment is what - $600?
11   AD   2019 Feb 7, 9:23pm  

Hugolas_Madurez says
OK, the truck is stupid, but what's wrong with $175K house on their $55K income? The monthly payment is like $600?


Sounds like a good opportunity to read The House Trap by Patrick, as well as use the NY Times rent-or-buy-calculator (https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html).

I've been listening to Ramsey a long time on the radio, along with Bob Brinker (who retired recently), and I think Ramsey said to not buy a house where the monthly expenses are more than 25% of take-home income Ramsey is very financially conservative.
12   MAGA   2019 Feb 7, 9:26pm  

I rent and do not plan to buy another house unless it's a deal I can't refuse. I have most of my estate going to charity, when the time comes.
13   MAGA   2019 Feb 7, 9:35pm  

Current ride: 2016 Honda Accord LX. It may be the last car I ever buy. I drive less than 15,000 miles a year.

Paid cash.
14   AD   2019 Feb 7, 10:29pm  

MAGA says
I rent and do not plan to buy another house unless it's a deal I can't refuse. I have most of my estate going to charity, when the time comes.


MAGA, you are going to have to then get a home at a fire-sale price like back in 2010-2013, and likely it will require some renovations and repairs.

I suspect you are careful to spend within your means and strive to reach (if not already) "critical mass" as far as savings (i.e., Bob Brinker strategy).
15   MAGA   2019 Feb 8, 2:44am  

APOCALYPSEFUCKisShostikovitch says
Buick Electra 225


Sounds like a perfect car for a Realtor.
16   joshuatrio   2019 Feb 8, 5:52am  

My wife's car: 2019 Toyota Highlander XLE - paid cash for it.

My car: 2009 Honda Civic. Keeping for 5 more years before I pass down to my kid. In which case, I'll buy another Civic.

I don't give a rip about what I drive, but I like to keep my wife in something relatively nice/reliable. Her last car was a CR-V, which was a noisy, tin can. We had it 10 years before moving up to the Highlander. It was a chunk of change, but we enjoy it. Sure, we could have used the $35k on something else, but our house is paid for, and our retirement accounts are fully funded.
17   Ceffer   2019 Feb 8, 6:06am  

Police are so stupid. Sometimes the police auction cars have all the hidden heroin and cocaine still in them, and you can turn a tidy profit.
18   Tenpoundbass   2019 Feb 8, 6:59am  

Hugolas_Madurez says
OK, the truck is stupid, but what's wrong with $175K house on their $55K income? The monthly payment is what - $600?

It would be more like $850 to $900, but with the escrow payments for Tax and Insurance and PMI it would be over $1500 a month.

The average house should still be around $120K for a crappy 1200 - 1900 sqft Burbdale Ranchero house.

When a Politician finally figures out the only way to bring back America's middle class and our high standard for quality of life, will be to build 10 to 20 new major cities between NYC and LA. Housing affordability and availability will fall back line with the wages. Either wages will sky rocket to make it seem like Houses are $120K or the value of houses will actually fall to $120K and we'll see the return of the $3.00 Chicken, and 3 for $1 snack crackers. Which are damn near $5.00 a box now.
19   zzyzzx   2019 Feb 8, 7:00am  

joshuatrio says
In which case, I'll buy another Civic.


Which version?
20   zzyzzx   2019 Aug 12, 10:37am  

Check out these government auction prices (HINT: expensive):
www.youtube.com/embed/vFoXB85WEHc
21   RC2006   2019 Aug 12, 6:21pm  

APOCALYPSEFUCKisShostikovitch says
Crown Vics are tough.

Buy one that's been in a crash and a couple of free fire fights.

Don't worry about using your blinkers when you change lanes.

No one will come near you, anyway.


That's how it was with my Plymouth Fury.
22   Shaman   2019 Aug 12, 6:24pm  

OccasionalCortex says
I once heard it was always best to buy a used car that was a) two years old or less and b) low mileage instead of buying a new car. Thus you let the other sucker take the 'drive off the curb' 50% depreciation hit.

Of course, nowadays those cares get snapped up real quick.


I did that with my last car. 2014 Camry hybrid with leather and cool stuff, bought in 2015 with 10k miles for 10k less than retail. Paid off last year and has 50k now. It’ll be a good car for another 15 years and no payment.
23   Booger   2019 Aug 13, 5:23am  

OccasionalCortex says
Thus you let the other sucker take the 'drive off the curb' 50% depreciation hit.


Vehicles aren't depreciating 50% in two years.
24   georgeliberte   2019 Aug 13, 6:12am  

My 2011 Ford Ranger was rear-ended and totaled a five years back. They did not make new Rangers at that time. I went on USAA buying services and found a 2009 Ranger with lower mileage, automatic (so my wife can drive it) for $3,000 less than the insurance payout. Turned out it was part of a corporate fleet consignment, so good upkeep. I was back iin a vehicle in under a week and it has less than 50,000 on it now. My commute, etc. is short and I average under 6,000 per year. I will keep that for 10-15 more years or so.
25   RWSGFY   2019 Aug 13, 8:40am  

Booger says
OccasionalCortex says
Thus you let the other sucker take the 'drive off the curb' 50% depreciation hit.


Vehicles aren't depreciating 50% in two years.


Some do.
26   MisdemeanorRebel   2019 Aug 13, 9:40am  

zzyzzx says
Check out these government auction prices (HINT: expensive):


Wow, no deals there, except the first Crown Vic. Thanks zzyzzx
27   HeadSet   2019 Aug 13, 10:26am  

I've been doing this for years & most of my tools & man shop items are in very good condition>

I know an architect who said the best deals on quality hand tools are at estate sales. Names like Snap-on and Matco. Have you con across any good finds?
28   FortWayneAsNancyPelosiHaircut   2019 Aug 13, 10:57am  

used trucks are expensive. been looking for one, can't find one priced well enough to make it worth it.
29   RC2006   2019 Aug 13, 12:33pm  

FortWayneIndiana says
used trucks are expensive. been looking for one, can't find one priced well enough to make it worth it.


Same here, have a 2005 Serria crew cab, been looking for a 4-5 year old Tundra with crew cab and they seem way to much.
30   Booger   2019 Aug 13, 2:06pm  

Iranian_Oil_Burse says
Vehicles aren't depreciating 50% in two years.


Some do.


Such as?
31   zzyzzx   2019 Aug 13, 2:08pm  

HonkpilledMaster says
Wow, no deals there, except the first Crown Vic


I was having trouble understanding why some the Crown Vics were cheaper though. That and I wonder why the fuck anyone anywhere near me (and they are near me) would want a rear wheel drive vehicle. He even mentions in one of his videos how they suck in the snow.
32   RWSGFY   2019 Aug 13, 2:26pm  

Booger says
Iranian_Oil_Burse says
Vehicles aren't depreciating 50% in two years.


Some do.


Such as?


Some Jaguars, LandRovers, some Infinitis. Most Korean cars too.

I once bought a 2y.o. off-lease car from that list for exactly half of the original sticker.

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