Prices Collapse For Used Cars

( Car dealers are supposedly making a killing on used car sales at the significant expense of consumers who are purchasing them.

A new report published this week called The Manheim Used Vehicle Index showed that wholesale prices of used cars is dropping dramatically, but the prices that consumers are paying for those vehicles is significantly up.

Prices for used cars dropped 2% in the first part of October from a month before, according to the report, and dropped 10.3% as a year-over-year measurement.

The prices for wholesale used luxury cars dropped 13.5%. SUV wholesale prices dropped 12.3%, and pickup trucks are down 8.4%.

At the same time, the retail price that consumers pay for these used cars increased 7.2% since this time last year, according to the most recent version of the consumer price index published by the U.S. Department of Labor.

Many economists are saying that dealers are holding onto the major profits that they’re able to realize between the two stark data points, which is driving inflation throughout the used car market.

Claudia Sahm, who’s a former banker for the Federal Reserve who founded Sahm Consulting, told media outlet The Hill this week:

“Dealers don’t have to pass it on. They can make bigger profits. At the end of the day, inflation and how much prices go up — these are decisions made by businesses. Inflation does not just come down from on high.

“You’re in a capitalist economy, so whether it’s a small business or corporation, they get to decide when they pass a price increase or a price decrease on.

“The Fed knows that import prices are falling, producer prices have really decelerated overall, wage growth has slowed down some, though there are still labor costs, but disinflationary factors will eventually show up in consumer prices.”

Some other economists took a less critical stance on the matter, Dean Baker, who works for the Center for Economic Policy and Research, for instance, said the different between the retail and wholesale prices in the used car market “likely is in part margins, but also a lag.”

He explained:

“If a dealer paid $5,000 for a car today that would sell for $4,500 in the wholesale market, they probably will still look to get a price that compensates them for the $5,000 they paid. That might mean there is a month or two for prices in the retail market to adjust to prices in the wholesale market.”

At the same time, he pointed out that during the COVID-19 pandemic, there was a major shift in the economy, where corporate profits increased at the expensive of consumers.

Baker wrote a blog post recently that read:

“It is … important to remember that we had a large shift in income shares from wages to profit in the pandemic. We can argue whether this was due to the exploitation of monopoly power or simply an outcome of shortages created by the pandemic and the war [in Ukraine], but the shift to profits is undeniable.”