The latest government inflation data released on Wednesday reveals a notable decline in both new and used car prices, suggesting a potential increase in consumer demand for automobiles.
For the month of July, consumer prices for new cars dropped by 0.1% compared to June, while used car prices saw a more significant reduction of 1.3% for the same period. Year over year, new car prices rose by 3.5% and used car prices decreased by 5.6%, marking a second consecutive month of decline.
These decreases in car prices are occurring at a faster rate than the broader economic inflation rate, which saw the Consumer Price Index (CPI) rise by 3.2% year over year in July. The trend extends to the wholesale auction market, where the Manheim Used Vehicle Value Index recorded a 1.6% drop in used vehicle prices for July and an 11.6% decline year over year.
While these price reductions are encouraging for consumers, it’s important to consider the context of the past year’s substantial price increases in the aftermath of the pandemic. Despite recent declines, the used car market experienced consistent double-digit price increases from July 2020 to April 2022.
On the retail front, the moderation in used car prices is translating into increased buying activity. Retail estimates from Manheim show that used-vehicle retail sales in July grew by 6% compared to June. Similarly, the National Automobile Dealers Association (NADA) reported an 18.3% increase in new car sales in July compared to the previous year. Rising inventories, manufacturer incentives, and decreasing prices are believed to be driving this surge in sales.
However, not all aspects of car ownership are becoming more affordable. Motor vehicle insurance costs are on the rise, with a 2.0% increase in July and a staggering 17.8% jump year over year. Factors contributing to this increase include a rise in accidents since the pandemic began and the growing complexity of car technology, leading to higher repair costs. Motor vehicle repair costs also rose by 12.7% year over year in July.