Economists say used vehicle sales, values down but should rise this spring

Used vehicle sales and values in the United States have not been as strong in recent months as tax refunds have been distributed more slowly than in years past, economists said. Still, the sales and values are projected to rise this spring.

Jonathan Smoke, the chief economist for Cox Automotive, said the slow distribution of tax refunds contributed to weaker used vehicle sales in February and March. He noted refund distribution was slower in 2021, but this was almost irrelevant because more than $4 trillion in stimulus money had been issued by the time refunds went out last year.

“Last year’s $365 billion tax refund season was a light dessert after a five-course meal,” he said. “This year, it’s the only game in town.”

As of March 25, only 45% of refunds have been issued, down from 71% at the same time in 2019. More than half of refunds typically are issued by early March, if not sooner, he said.

“The single most important catalyst for used vehicle demand is three to four weeks behind schedule in 2022,” he said. “But have no fear. Those refunds will be at critical mass in April.”

Also, the average refund amounts are 14% higher than they were in 2019 and up 12% from 2021. They have reached the highest level recorded at this stage of tax refund season, he said.

April is expected to be the best month in 2022 for used vehicle sales. He noted that when cash is flowing into consumers’ accounts retail used vehicle sales rise.

According to the Manheim Used Vehicle Value Index, wholesale used vehicle prices on a mix-, mileage-, and seasonally-adjusted basis fell 3.3% in March, from February. The price index is up 24.8% in March, from the same month in 2021.

Chris Frey, senior manager, economic and industry insights for Cox Automotive, said used prices are expected to rise during the selling season this spring, but the increases likely will be lower than they were in 2021 as a result of the high prices last year. After this spring, vehicle prices are expected to decline.

Smoke expects vehicle values to fall by 3% in 2022, from 2021. Used sales and used retail sales are projected to be 39.3 million and 20.7 million, respectively, this year. In March, retail used vehicle sales fell by 15% from the same month in 2021, Smoke said.

Used vehicle inventory was down 9% in March compared to the same month in 2019. But days supply of used vehicles declined by nine days in March, from February, as the supply has fallen from higher-than-normal to normal levels.

New sales and new retail sales are projected to be 15.3 million and 13.3 million, respectively, this year.

New vehicle inventory was down 71% in March, from the same month in 2019. He expects new inventories to worsen amid the production and supply chain issues in Asia and Europe.

BROADER TRENDS
Smoke said he doesn’t expect a recession in 2022 but a slowing economy. Forecasters see a greater chance for a recession in 2023, said Smoke, adding that the used vehicle market typically performs better than the new market during a recession.

Some of the uncertainties that could impact the economy included another COVID-19 variant and the worsening of the Russian invasion of Ukraine, he explained. The impact of the most recent COVID wave was less than the previous two waves, and active cases have fallen to summer 2021 levels.

“The U.S. has likely transitioned from pandemic to endemic status on COVID,” Smoke said. “That does not mean we can forget about COVID. Health experts are suggesting with COVID as endemic, we could see as many as 400,000 deaths per year from the virus.”

This would be similar to the worst flu outbreaks the United States has experienced since the 1918 Spanish flu.

“However, we will hopefully no longer see the disruption we’ve experienced over the last two years,” Smoke said. “But other regions of the world remain in a pandemic state. A key worry for auto is COVID remains disruptive to supply chains, especially in areas like Asia and specifically China that have not had vaccination success.”

He noted the omicron surge in China is a factor that has worsened the 2022 outlook for new vehicle production, limiting sales and postponing wholesale recovery to at least 2025.

In the United States, Smoke said economic activity is recovering as it’s past the most recent wave, and 11 states have reported activity higher than pre-COVID levels.