Used car prices are getting more affordable as several factors change the balance between supply, demand, price, loan rates, and incomes, according to at least one analyst.
The trend of increasing used car affordability should continue for at least several months, the analysis by Jonathan Smoke, chief economist at Cox Automotive, predicts.
Vehicle supply and demand are finally returning to a more normal condition after the massive COVID-19 disruptions to the market in 2020 and 2021, the analysis says. Used car prices reached their maximum in April and have fallen around 3 percent since, with the trend appearing likely to continue.
Used car loan rates are also dropping according to the analysis, down from 14 percent to 13.6 percent. While this is not a drastic drop, it is the first significant downward movement in a considerable time. Meanwhile, new car loan rates are rising, making used cars proportionately more attractive. Financing sources are now charging an average of 9.2 percent for new car loans, up from last year’s 6.4 percent.
While the Federal Reserve increased the Federal Funds Rate again, raising it to approximately 5.25 percent to 5.5 percent, the analysis points out this rate has less impact on used car loan rates than other factors. Bond yields are more important and those appear to be moving in a direction tending toward lower loan rates.
The Cox analysis predicts used car prices will drop even lower in August, September, and October as the various shifts in the market gather momentum. In addition, wage and income growth have started to outpace inflation, putting used cars within reach of more purchasers again.
The drop in used car prices will help to lower inflation, too, since vehicles are a significant expense for most consumers. Stone remarks that the indicators “point to a calmer and more predictable auto market in future months compared to the road traveled in recent years,” though labor strikes could be a wild card.
Against this backdrop, GM vehicles are found by research to hold plenty of residual value, especially in the Canadian market. Perhaps unsurprisingly, the Chevy Corvette keeps 84.2 percent of its value over four years.
The 2024 Chevy Trax, which is highly popular and attracting many first-time GM buyers, is expected to keep 63 percent of its value over a 36-month lease according to analysis by The General. And among EVs, the Cadillac Lyriq appears poised to keep plenty of resale value over several years, at least in Canada.