MNI INTERVIEW (RPT): US Car Prices To Flatten Later In '22

(Repeats article first published on Feb. 25)

National Independent Automobile Dealers Association President Joe McCloskey told MNI he sees auto prices on the path to begin leveling off starting in the second half of the year, even as he expects demand to stay resilient in the face of rising interest rates.

"We forecast internally, and through all of our 20 groups in the industry, that we will see leveling of used car prices at some point but that we will not see a rapid reduction in prices," he said. "We may see a small decrease but I firmly believe that we will not see a rapid reduction in pricing."

Noting the eye-popping surge in used and new car prices over the last 20 months, a key driver of the broader U.S. inflation jump, McCloskey anticipates prices to start cooling later this year.

"You'll continue to see new car prices hold their own for probably the next three to four years at least, maybe five years," McCloskey said in an interview. "As a result then you'll continue to see used car prices continue to hold as well."

BUILDING INVENTORY

Recent road closures from the Detroit area to Canada may have added to supply pressures for manufacturers, he said, but auto dealers are doubling down and building up inventory ahead of the tax refund season when many consumers are flush with cash and keeping demand strong.

"The used car market remains very strong," said McCloskey, noting continued supply challenges for franchise dealers as well as new car manufacturers. "That is going to be continuing for several more months, if not into 2023, before inventory levels get back to some form of normal," he said.

U.S. consumer price inflation surged 7.5% in the year to January, with used car prices up 40.5% and new car prices up 12.2%. With each category representing slightly over 4% of the CPI weight, those rapid price gains have been a big factor in overall inflation, accounting for close to a quarter of the one-year inflation increase.

The Manheim Used Vehicle Value Index last week showed used car prices declined 1.5% in the first 15 days of February compared to the full month of January.

CREDIT LINES

San Francisco Fed President Mary Daly Thursday said she doesn't expect "used car prices to continue to rise at double digit rates," adding that supply and demand "factors will wind themselves out to a more steady equilibrium down the road but how long that will take is still unclear." Fed officials are expected to pencil in 5 or more rate hikes in quarterly forecasts at their March meeting.

The NIADA chief said that the central bank raising interest rates over the next year above 2% will have little impact on auto demand, except maybe for high-priced vehicles over USD70,000. "The Fed's interest rate increases are quite small and may only affect consumer's payments by USD5 to USD12 per month."

"There's a large supply of money that continues to sit on the sidelines and lenders are wanting to make good, quality loans and put the money out on the street," he said. "I don't see a tightening of credit, which has much more of an impact on us than interest rates do."