The used car market is in a ‘weird’ spot

By year-end, interest rates will be at a level not seen since 2001, creating shock waves that will reverberate through all parts of the economy, especially for consumers concerned about affordability, said Jonathan Smoke, chief economist at Cox Automotive.

After several increases this year, the Federal Reserve moved its short-term borrowing rate to a target range of 3.75 percent to 4 percent, and Smoke said it will likely jump another half-percentage point in December. The interest rate spike especially threatens demand by consumers with poor credit, who buy used cars instead of new, Smoke said.

“What we’ve seen has been more negative to the used-vehicle market, because we’re seeing a collapse of subprime,” he said.

Wholesale used-vehicle prices have dropped significantly after hitting record highs at the end of 2021, with further pricing changes at wholesale and retail likely to be gradual, according to used-car market analysts.

Continuing constraints on new-car supply will prevent used prices from falling off a proverbial cliff, said Tom Kontos, chief economist at auction giant ADESA, which was acquired by Carvana in May.

Karl Brauer, executive analyst for iSeeCars.com, called it “inconceivable” that car prices — especially on the used side — will be higher in six months.

Tyson Jominy, vice president of data and analytics at JD Power, said retail prices are not quite reflecting the wholesale downturn yet.

But, said Kontos, the situation is already a far cry from 2021, when used-car prices in many cases grew faster than escalating new-vehicle prices.

Even with the recent pricing moderation, Zack Krelle, industry analyst at TrueCar, said consumers still consider used-car prices to be high.

“They’re way out of their comfort level,” he said.

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