July Used Car Prices, Dr. Suess, Kangaroos, and Camrys
The market has been so weird so long, that weird is normal
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When the used car market is unstable, people want a car that will last long and will hold its value no matter what the future holds.
People want Camrys.
The market has been so unpredictable for a year now that dealerships and the general public alike are more comfortable with a safe bet.
So what’s the safest bed? A Camry.
In fact, used mid-sized cars in general are selling the best in the current kangaroo market.
You know the ones: Malibu, Altima, Accord, Avalon
According to the Conference Board Consumer Confidence Index®, consumer sentiment around vehicle buying conditions hit the lowest level so far this year in May, but remains higher than this time last year.
And much like with the general car-buying public, car dealers have a similar sentiment. According to the monthly Cox Automotive industry survey, dealerships aren’t really expecting the market to go up or down. That doesn’t necessarily mean everyone expects the market to hold, we’re just not not sure which way it’s going to go and how fast.
When it comes to the economy-priced reliable mid-size cars in the used car market, we’re seeing a continued trend of higher sales, higher relative prices, lower inventory and, lower depreciation.
Used Prices Hold Into Summer 2023
Last month we reported the used vehicle listing price at just under $27,000. That’s up to $27,256 heading into last month. We certainly don’t expect to see big price gains for used cars in these summer months, but holding prices is a good sign during a season that usually sees drop-off.
May 2023 used car sales (the most recent data) on the other hand are down compared with both April of this year and May of 2022. Early returns from June seem to show a slight uptick in retail sales similar to March sales numbers.
Here’s what Cox Automotive’s senior manager of Economic and Industry Insights Chris Frey has to say about used vehicle sales going into July:
“The retail used-vehicle story is still being influenced by inventory, which is near the lowest point in our data set, which goes back to 2019. The tight inventory is holding prices higher, but our team also believes that high interest rates and elevated retail prices are hurting demand. Wholesale prices have been coming down in recent months, which likely means lower retail prices are on the horizon.”
As it stands, there are still fewer recent used cars — “new” used cars if you will — because of the pandemic production shortages and economic slowdowns.
Similarly, fleet companies were flipping fewer lightly used cars into the mused car market. So more recent models of used cars are in higher demand, while some folks are settling for slightly older used cars because there is a shortage in more recent year models.
Wholesale used car prices are slipping, but because of the inventory issues listed above, retail used car sale prices could continue to hold.
New Cars Becoming More Affordable (but only a little)
New car sales dipped this month as inventory hit a year-year high, about 825,000 available new cars more than this time last year.
And thankfully, we’re seeing the average new car listing price slip a little as manufacturer incentives continue to tick up.
Manufacturer incentives continued to rise to nearly $2,000 per transaction as brands try to move this extra inventory in the face of decreased demand.
Here’s what Cox Automotive senior economist Charlie Chesbrough had to say about the weird month:
“The month of May ended on a slightly less positive note than when it started, suggesting some weakening of demand. Sales for new vehicles began to decline near the end of the month, after rising throughout the month as supply continued to increase. That caused days of supply, which is based on active supply and the daily sales rate, to edge higher. Meantime, prices for new vehicles slipped, another indication of slightly weaker demand.”
Even with sales decreasing, new car sales are still 23% higher than this time last year, which is why the used car market feels so loose right now.
Income Growth Beats Inflation to Help Vehicle Affordability
The vehicle affordability index improved slightly going into June (lower is better, like golf), but only because income went up, not because prices improved.
In fact, the average new auto loan rate increased to nearly 9% and the average monthly used car payment continued to climb past $750 per month.
Monthly New Car Payment Hits $768
The US median income increased by nearly half of a percent (.3%) and manufacturer incentive pricing on new cars continued to ease up. Both of those factors helped the vehicle affordability index in the face of increased interest rates and rising monthly payments.
Cox Automotive Chief Economist Jonathan Smoke said we’re experiencing some ripples from Fed rate hikes.
“The Fed pausing rate hikes after 15 months doesn’t undo the numerous increases that have limited new-vehicle retail sales growth over the past year. However, the good news for consumers is that the rates they see on auto loans likely peaked earlier this year and may not move up despite the threat of another rate increase in July.”
While used car loan rates are much higher than for new cars, used car sales could benefit from falling interest rates as new car rates stay near all-time highs.