Many used-car shoppers are staying on the sidelines, holding out for lower interest rates. One reason is because the Federal Reserve has widely telegraphed it intends to cut rates later this year, according to a report from wholesale auction firm Manheim, a Cox Automotive company.
“Rates are very near 24-year highs, and that limits potential demand, especially when consumers believe rates will be lower soon,” says Jonathan Smoke, chief economist for Atlanta-based Cox Automotive.
Until rates are cut, dealers and OEMs may need higher discounts to move the metal, Cox Automotive says.
The Federal Open Market Committee left rates unchanged in its last meeting March 20. That’s raising expectations for rate cuts in second-half 2024, analysts say. The committee’s next regularly scheduled meeting is April 30 to May 1.
For context, Experian Automotive reports separately that the average used-vehicle loan in fourth-quarter 2023, the latest quarter available, had an interest rate of 11.9%, up from 10.4% over the same period a year earlier.
With high interest rates, softening demand and somewhat improved used-vehicle supply, Manheim reports that its Used Vehicle Value Index fell to 203.1 for March, down 14.7% from a year ago.
The seasonally adjusted average wholesale used-vehicle price was $18,573 in March. That’s down 14.7% from $21,777 in March 2023, Manheim says.
Jeremy Robb, senior director of Economic and Industry Insights for Cox Automotive, says that is the 19th consecutive month of declining prices vs. the year-ago month, a trend that began in September 2022.
Robb also says that in March, the usual “spring bump” in both wholesale and retail used-vehicle sales, fueled by tax refunds, seems to have peaked a bit early, since sales slowed in the final week of March.
It should be noted that the current decline in values follows an extraordinary increase in used-vehicle values and the Manheim Index. The increase was parallel with the drop in new-vehicle production during pandemic-related shutdowns, followed by a prolonged shortage of computer chips and other supply-chain issues.
In 2019, before the pandemic, the Manheim Index averaged 151.2. Once the pandemic hit, used-vehicle values rose because new-vehicle shoppers turned to used cars; there were fewer trade-ins on new cars; and the supply of nearly-new used cars fell.
The Manheim Index is designed to be a single measure that tracks used-vehicle wholesale price changes, weighted for a changing mix of product segments and mileage, and seasonally adjusted. The index is calculated relative to a starting point where January 1997 equals 100.
