Wholesale prices for used cars are dropping as sales weaken

A sign that says “We buy used cars!!” At an auto show on February 15, 2023 in Glendale, California.

Mario Tama | Getty Images

DETROIT — Wholesale used car prices hit their lowest level of the year in May, as sales fell amid rising interest rates and inflated retail prices.

Cox Automotive on Wednesday reported a 2.7% decline from April to May in Mannheim used vehicle value index to 224.5. It marks the second consecutive monthly decline and the lowest level for the index since 219.3 in December.

The index, which tracks cars sold at wholesale auctions in the United States, is still up from historical levels but is expected to continue falling this year amid improving new-car inventory levels and higher interest rates that appear to scare away consumers.

“Taking a longer view, the May decline accelerated year-on-year from April and March; however, the rate of decline may slow over the next several months as we face the lower prices seen at auction from May to November last year,” he said. Chris Fry, Cox’s senior director of economic and industry insights, in a statement.

Used retail sales are estimated to have fallen 11% year-over-year in May, Cox reports. This notable decline comes as many Americans, especially those with low credit ratings, are being priced off the market and repairing rather than replacing their cars.

Declines in sales and wholesale prices point to weakness in the used car market, according to Cox. This is not good for auto dealers in the US, but it is a win for the Fed’s battle to reduce inflation by raising interest rates.

Used car prices have increasingly become a measure of inflation since early last year when the Biden administration blamed the market for high inflation.

Used car prices have skyrocketed since the early days of the coronavirus pandemic, as the global health crisis combined with supply chain issues brought new car production to a sporadic halt. This led to reduced supply of new cars and record high prices amid resilient demand. Costs and scarcity of inventory drove consumers into the used car market, driving up those prices as well.

Continued declines could help lower used car prices for consumers, since retail prices usually track changes in wholesale prices. However, that hasn’t been the case so far, as the average retail price of a used car has risen 0.8% over the past four weeks, Cox reports.

Cox reports the average listed price for a used car It was $26,969 in Aprilthe latest available data.