Are Used Car Prices Set To Soar Again?

Via Real InvestmentAdvice.com,

It wasn’t that long ago that used car prices were soaring as the production of new cars was crimped due to Covid-related supply line shortages. 

Since then, used car prices have stabilized as the supply lines have healed. 

However, like many goods, prices haven’t retreated to pre-pandemic levels. 

As we wrote in yesterday’s Commentary, the new 25% tariff on cars assembled outside the US could raise new car prices. 

JP Morgan thinks the impact could be 10% or more if the tariffs are fully passed on to consumers. 

Thus, those consumers unable or unwilling to pay a higher price may resort to purchasing a used car. 

Economists call this the substitution effect.

The market seems to think the tariffs will benefit used car suppliers. Per Bloomberg:

As of midday Thursday, shares of used-vehicle dealers CarMax Inc. and Carvana Co. were each modestly higher, while rental-car company Hertz Global Holdings Inc. soared as much as 27% to its best intraday gain in more than three years. GM, Ford, and Stellantis all fell.

While the supply lines are back to normal, the used car market is still short on supply. 

If demand for lower-end new models declines, as many of them are made outside of the US, used cars will likely be more in demand. 

Thus, their prices are likely to rise. 

Given the on-again, off-again nature of tariff announcements and actions, the net impact on new and used auto prices is unclear at this time.