Vehicle prices have been on a downward trend in recent months, with July seeing the most significant decrease in the Consumer Price Index (CPI) compared to other major categories. This decline is a positive sign for consumers as the car market slowly returns to „normal“ following pandemic-induced inflation.
According to data from the Bureau of Labor Statistics (BLS), used car prices dropped by 2.3% in July compared to the previous month and by 10.9% from the prior year. New car prices also saw a decrease, falling by 0.2% in July and 1.4% from the prior year. This downward trend is a stark contrast to the rapid price increases seen in the past year.
In fact, compared to their peak in February 2022, prices for used vehicles have fallen by 19.4%. This is a significant shift from the more than 40% annual price increases seen in 2021 and early 2022. Despite the recent declines, used car prices are still 16.9% higher than they were in July 2019.
The overall Consumer Price Index (CPI) rose by 0.2% in July and 2.9% over the prior year, showing a slight deceleration compared to the previous month. This is slightly below economist expectations of a 3% annual increase, indicating a more stable pricing environment.
The decrease in vehicle prices can be attributed to a buildup in inventories, leading to lower prices, especially in the used car market. As new car prices trend downward due to increased inventory levels, the values of newer used vehicles have also declined.
Auto research firm Edmunds noted in its Q2 vehicle prices report that the trends in the used market are directly linked to dynamics in the new-car market. The normalization of inventory levels has led to discounts and incentives on aging inventory, resulting in lower prices for both new and used vehicles.
While falling prices may benefit buyers, dealers may feel a slight pinch as a result. However, automakers like Ford, GM, and Toyota have still seen strong sales at the dealer level, with GM expecting only modest drops in average transaction price.
Despite the overall decrease in vehicle prices, there is some good news for used car dealers. The Manheim used vehicle value index (MUVVI) rose slightly in July compared to June, indicating increased demand for used cars. This could be attributed to a smaller quantity of leased vehicles entering the used market, potentially leading to higher prices.
The question remains whether this increase in used vehicle prices will be sustained or just a temporary blip. Analysts at Manheim believe that the trend may continue, but only time will tell.
In conclusion, the recent downward trend in vehicle prices is a positive development for consumers, signaling a return to normalcy in the car market. While dealers may face some challenges, overall sales remain strong, and there is potential for continued growth in the used car market. Stay tuned for further updates on this evolving trend.