Used vehicle prices rise after tariff talk; Car-Mart sees no impact from tariffs

by Jeff Della Rosa (JDellaRosa@nwabj.com) 194 views 

Starting in early June, used vehicle prices started to rise, and Jonathan Smoke, chief economist of Cox Automotive, attributed the abnormal summer increase to tariffs. Smoke, who also compiles the Manheim Used Vehicle Value Index, explained prices increased after a pull forward in sales related to concerns of rising prices as a result of tariffs.

In June, President Donald Trump said the United States will establish a 25% tariff on $50 billion of goods from China. In September, Trump said the United States would impose tariffs on $200 billion of goods from China.

Between June and August, used vehicle sales should have been about 300,000 vehicles less than they were, said Smoke, adding that the pull forward in sales has led prices to rise.

The Manheim Used Vehicle Value Index rose 3.7% to a record high of 139.9 in September, from the same month in 2017. Starting in June, prices rose for 11 consecutive weeks. By September price depreciation started to return to normal, but even with this change, 3-year-old vehicles are worth 4.5% more than they would normally be worth at this time if the depreciation happened as expected.

While new vehicle prices typically reach a high point in December, used vehicle prices usually come to a peak in March or April, said Zo Rahim of Cox Automotive. The spring price increase comes after families receive income tax returns. The prices rose in March, but instead of falling through the remainder of the year, they continued to rise. From January to September, the prices have risen 2%, Smoke said.

Affordable vehicles have experienced the greatest price increase. Prices for compact cars rose 7.1%, while prices for midsize, SUVs and pickups increased 4.4%, 2.7% and 2.4%, respectively.

In the third-quarter Cox Automotive Dealer Sentiment Index, the majority of dealers expect conditions over the next three months to be strong. More than one-third of dealers expect tariffs on imported vehicles and parts to have a negative impact on profits.

When asked if Bentonville-based America’s Car-Mart has had any impacts related to tariffs, President and CEO Jeff Williams said no impacts directly.

“New car prices have outpaced inflation for quite a while now so if tariffs exacerbate that trend then more folks will end up looking for used vehicles based on the gap,” Williams said. “We have been dealing with this for a long time as higher prices affect affordability and term lengths. It’s hard to know what tariffs might due to the environment, but we will keep finding the best cars at good prices for our customers. It’s supply and demand as to what happens.”

Also, Williams said the company hasn’t seen anyone buying ahead of tariffs, and price increases have not impacted sales.

“We hope this is temporary, but at this time last year everyone was saying we would be seeing 5% decreases in prices, and we’ve seen just the opposite,” he said. “The strong economy and the gap between new and used prices have put upward pressure on used car values. Tariffs could play into this down the road.”

Used vehicle sales declined 2% in September, from the same month in 2017, according to Cox Automotive. Over the past year, the annual rate of sales has risen 1%. In September, the seasonally adjusted annual rate of sales was 39.4 million vehicles, down from 39.7 million in the same month in 2017.

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