Used cars in the US: why rising interest rates are making them more expensive

Used cars in the US: why rising interest rates are making them more expensive

Price hikes in the auto market have not only wiped out affordability in the new car industry, but increasingly puts consumers who chose to buy a used car out of budget.

The crisis affecting the used car market is clearly reflected in the bad news reported by the used car sales giant, CarMax, which this week reported a 54% drop in sales.

That crash, he detailed, was linked to a 6.4% drop in the number of used cars it sold during Augustcompared to August 2021.

According to CarMax, the drop in sales was caused by “vehicle affordability challengeswhich derive from generalized inflationary pressures”.

The company added that the consequences of the increase in interest rates that the Federal Reserve has carried out in recent months are added to the scenario of high prices, most recent mid-September 0.75%.

Consumers’ ability to purchase is reduced, since the rise in interest rates makes loans more expensive, and, therefore, limits the possibilities of paying in cash, in the face of escalating prices.

According to a CarMax report, the average selling price of a vehicle is $28,657 between June and August, which was 9.6% more compared to the 2021 figure.

The fall in sales triggers the alerts of the sector

Rising used car prices in the United States have delivered mixed results for businesses, on the one hand boosting overall business revenue but also alienating consumers.

In the case of CarMax, its shares fell more than 24% on Thursday this week after knowing the results of sales and income, which were well below the forecasts of the specialists.

For its part, CarMax rival Carvana fell 23%, while AutoNation reported a 10% decline in its shares. New car manufacturers were not far behind, with declines reported for General Motors, Ford, Stellantis and Tesla.

Until recently, the strong demand for new cars put automakers in crisis, unable to satisfy it and adding to their waiting lists due to the lack of components, mainly chips for the car’s computers.

This caused car prices to skyrocket, given a demand in which approximately 40% of households in the United States buy a car each year.

For its part, the behavior of used car prices has been irregular, with a drop of 2% last August, according to the latest report from the Bureau of Labor Statistics.

Despite the fall,Used car prices are still 48% higher compared to August 2019according to the Consumer Price Index (CIP), while the prices of new cars have increased a further 30% in the last three years.