Wednesday, June 8, 2011

Putting used car prices in perspective

According to the folks at Manheim Consulting, used car prices have soared by 30% since the end of 2008. That sounds like quite a lot, but the real story is that used car prices have only barely kept up with inflation over the past eight years.

The chart above compares the nominal value of the Manheim Index (blue line) with the inflation-adjusted (real) value (red line). Since 1995, the consumer price index has risen by about 50%, but used car prices have risen by a little less than 30%. So real used car prices have fallen almost 20% since 1995. Most of that decline occurred during the 2000 to 2003 period, which was a time when the Fed's extremely tight monetary policy of the late 1990s began to take hold (recall that the dollar was soaring and commodity and gold prices were plunging in the late 1990s/early 2000s). Deflation was a real threat back then, and used car prices were deflating both in real and nominal terms.

The recent gain in used car prices, when looked at in constant-dollar terms, has been just a reversal of the huge drop that occurred during the recession. On balance, real used car prices haven't changed at all since 2003, and they are still almost 20% below where they were in 1999.


jackie100 said...

Actually, used cars are a bit pricier now due to the recent disaster in Japan. Used cars that are fuel efficient are particularly in high demand because consumers are keeping their cars a lot longer than they did in past years.

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