Used-car sales have been quite hot.
In fact, not since 2012 has the July seasonally adjusted annualized rate for used cars been as high as it was last month.
That’s according to the latest Manheim Used Vehicle Value Index report, which said used-car sales paced at an estimated 39.2 million SAAR last month.
There was a 3-percent year-over-year gain in used-vehicle sales volume last month, and the annualized pace has climbed 1 percent, the report indicated.
Regarding the latter, private-party sales are leading the way, as they jumped 4 percent last month on an annualized basis.
Also strong were used-car sales for franchised dealers, which improved 2 percent on an annualized basis.
Tariff impact on used
And used-car sales could become even stronger, should tariffs on imported new vehicles come to fruition.
Autolist asked 1,453 car shoppers late last month how they would respond to new-vehicle tariffs and found that 41 percent would buy a used car instead.
Meanwhile, 22 percent were unsure how they would react, and 15 percent would go with a less expensive new vehicle. Interestingly enough, 14 percent said they would keep their initial plans. Nine percent would postpone buying.
And close to two-thirds (65 percent) are anticipating higher new-car prices due to tariffs, Autolist said.
Cox Automotive analysts addressed the used-car impact of proposed auto tariffs during a conference call with the media last week, noting that there may already be some “pull-ahead” activity by dealers.
It was posited that one factor driving the strength in the used-vehicle market is dealer reaction in anticipation of the impact from the proposed auto tariffs.
“On the used market, we might be seeing some early pull-ahead activity, where … many dealers are buying inventory to try and get ready for (the proposed auto tariffs) if and when they go into effect, which probably wouldn’t be until later this fall,” Cox Automotive senior economist Charlie Chesbrough said during the call.
Dealers perhaps are aiming to acquire used-car inventory before these proposed auto tariffs are effective, as they’re apt to increase used-car prices, Chesbrough explained.
Likewise, in comments provided by email in early July, PureCars chief executive Sam Mylrea touched on the potential price impact of proposed auto tariffs, saying that “there’s a chance that used-car prices could skyrocket alongside that of new cars,” linking to this CNN Money story.
“This will make it even more important for used-car dealerships to monitor inventory and implement the most efficient marketing strategies possible to move cars off the lot,” Mylrea said.
Not many 'silver linings'
In the Cox Automotive analyst call with reporters in early July— where the company said it anticipates the used-car market plateauing at at a strong 39.5 million annual sales — the company addressed the potential impact of tariffs, as well.
Should new tariffs on imports happen, the actual impact could be quite varied; however, Cox Automotive said it could lead to a 5- to 25-percent gain in new-car prices.
Discussing tariffs in general, but tailoring it more to potential tariffs on imports, Cox Automotive chief economist Jonathan Smoke said in that July call: “We do think that an increase in new-vehicle prices brought on by tariffs is going to trickle into the used-vehicle market. It’s going to likely take several months and it’ll be reflected primarily in lower depreciation rates, rather than an immediate adjustment in used-vehicle prices.
“But there is a natural balance that the market, essentially, likes to see in between ages of vehicles. And so, if suddenly the new vehicle has a higher price, the used market will adjust to that,” Smoke said.
And the industry does not really gain from having higher prices on used cars, he said.
“The only constituency that really benefits from higher used-vehicle prices are finance companies, because they basically end up with higher residuals on lease vehicles, they end up with … lower losses on vehicles that go into collection mode,” Smoke said.
“But for a dealer and for a consumer, higher prices in both new and used vehicles is going to be a bad thing and will inevitably lead to fewer transactions. And fewer transactions inevitably lead to a smaller market, and a smaller market takes a dent out of the economy,” he said. “And so, it’s something that we don’t see a lot of positive silver linings in down the road.”