February is seeing the sharpest increase in used car prices in 14 years as the economy continues to struggle under historic inflation.
From January through the Feb. 15, wholesale used-vehicle prices increased 4.1 percent making it the largest February increase since 2009 according to the mid-month Manheim Used Vehicle Value Index from Cox Automotive.
This comes just a month after markets were hit with a massive rise in used car prices, according to the Manheim Used Vehicle Value Index.
The used vehicle index rose to 234.0, down 7.3 percent from the entire month of February 2022, as seasonal adjustment drove a small part of the gains.
The price of used cars has long been used by U.S. market watchers and by the Fed as a prime benchmark for observing the rate of inflation. Prices, say economists and automotive insiders, are being driven by skyrocketing prices of new cars, which is causing the public to hold off on new car purchases. Average prices for a new car were up 42.5% in September 2022 vs. February 2020, according to JPMorgan.
One of the concerns surrounding the Fed’s controversial disinflationary policy has been the spike in wholesale used vehicle prices.
Although the latest Consumer Price Index (CPI) report showed a slight decline in used vehicle prices, a sizable bounce is expected in this category due to a time lag over the next few months, according to analysts.
At the same time, the real-time Manheim index shows that future CPI data for the Used Cars and Trucks component will likely increase, as prices have a two-month lead.
Nationwide Auto Loan Defaults Expected to Hit Soon
Used car prices are increasing as consumer auto loans hit a new record of over $1.4 trillion, though many borrowers are beginning to falter on their loans.
The number of consumers in auto-loan debt is increasing at a time when borrowing rates on car loans are at some of their highest levels on record.
The auto-loan crisis may yet turn into a major storm as the rate of severely delinquent loans has hit levels not seen since the Great Recession.
It is feared that many people who bought cars at a time of low interest rates and pandemic-era monthly government handouts of $1,000 face financial ruin in the current “non-recession.”
“People are not paying their car loans. Auto loans delinquent (overdue) by MORE than 60 days are now up 26.7 percent from a year ago. Not a crisis just yet but watch this trend closely,” said industry observer CarDealershipGuy in a tweet last month.