By the end of the year, interest rates will be at a level not seen since 2001, creating shock waves that will reverberate through all parts of the economy, especially for consumers worried about affordability, said Jonathan Smoke, chief economist at Cox Automotive .
After several increases this year, the Federal Reserve moved its short-term lending rate to a target range of 3.75 percent to 4 percent, and Smoke said it was likely to jump another half-percentage point in December. The interest rate spike is particularly threatening to demand from consumers with bad credit, who buy used cars rather than new cars, Smoke said.
“What we’ve seen is more negative for the used vehicle market, because we’re seeing a drop in subprime,” he said.
Wholesale used vehicle prices have fallen significantly after hitting record highs at the end of 2021, and further wholesale and retail pricing changes are likely to follow, according to used car market analysts.
Continued restrictions on new car supply will prevent used prices from falling off the proverbial cliff, said Tom Kontos, chief economist at auction giant ADESA, which acquired Carvana in May.
Karl Brauer, executive analyst for iSeeCars.com, called it “unbelievable” that car prices – especially on the used side – will be higher in six months.
Tyson Jominy, vice president of data and analytics at JD Power, said retail prices are not yet fully reflecting the wholesale downturn.
But, Kontos said, things are already a long way from 2021, when used car prices in many cases grew faster than new vehicle prices.
Even with the recent pricing moderation, Zack Krelle, industry analyst at TrueCar, said consumers still consider used car prices high.
“They are way out of their comfort level,” he said.