FYI: Auto prices saw significant declines in July, marking the largest drop among major Consumer Price Index components over the past year.
Auto Market Trends: Downward Trajectory in Prices
In July, auto prices continued their downward trend, making it the largest dip among key components of the Consumer Price Index (CPI) over the past year. This decline is a positive indication that the auto market is returning to a state of normalcy after the surge in inflation triggered by the pandemic.
Significant Declines Noted
According to data released by the Bureau of Labor Statistics (BLS) on Wednesday, used-vehicle prices fell by 2.3% in July compared to the previous month and plummeted by an impressive 10.9% year-over-year. Moreover, prices for new vehicles showed a decrease of 0.2% in July and have fallen by 1.4% from a year ago.
Comparison with Historical Peaks
Used vehicle prices are now down 19.4% from their peak in February 2022. Historically, used vehicle prices had surged by over 40% year-over-year during June and July 2021 and again in January and February 2022. Despite the recent drops, prices for used cars and trucks are still 16.9% higher compared to July 2019 levels.
Consumer Price Index Trends
The headline CPI for July saw a modest rise of 0.2% from the previous month and a 2.9% increase from the previous year. This figure represents a slight slowdown compared to June’s 3% year-on-year increase but continued to exceed economists’ expectations of a 3% annual rise.
Market Dynamics: Inventory and Pricing
The decline in both used and new vehicle prices is partly due to rising inventory levels. This trend has led to increased availability and reduced prices, particularly in the used vehicle market.
Edmunds’ Insights
Auto research firm Edmunds highlighted in its second-quarter pricing report that the trends in used-vehicle prices reflect those in the new-vehicle market. The normalization of inventory levels has been a crucial factor. The increase in new-vehicle inventory over the past year has resulted in discounts and incentives on older stock, leading to a decrease in new and used vehicle values.
Dealers and Sales Trends
While this normalization in auto prices is beneficial for buyers, it poses challenges for dealers. Despite the declines in prices and the resultant inventory buildup, major automakers such as Ford (F), GM (GM), and Toyota (TM) are still experiencing strong sales at the dealership level. GM, in particular, anticipates that the drop in average transaction prices will be minimal.
Mannheim Used Vehicle Price Index
Interestingly, the Mannheim Used Vehicle Price Index (MUVVI), which tracks wholesale price changes, rose slightly in July compared to June. This uptick suggests stronger demand for used vehicles. Analysts at Manheim speculate that prices may continue to rise due to the low availability of leased vehicles on the market. However, it remains to be seen if this is a temporary occurrence or signals a persistent upward trend in used car prices.
Conclusion: Market Outlook
The gradual decline in auto prices represents a welcome shift towards stability in the market. While buyers are benefiting, dealers face the pressure of adjusting to new market dynamics. Moving forward, the interplay between supply, demand, and pricing strategies will be critical in shaping the auto market landscape.
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Lawrence Jacobs, Editor of Automotive.fyi
