The Price Gap Between New Cars And Used Cars Is Higher Than Ever

Almost every major economic indicator in the United States points towards the improbable “soft landing” scenario wherein we get out of the pandemic and post-pandemic inflation scare mostly unscathed. Employment is strong. GDP is solid. And even inflation is mostly coming down. However, a quirk in how the pandemic impacted car sales means that the gap between what a new car costs and what a used car costs is greater than it’s ever been.

It’s a spooky Halloween edition of The Morning Dump if you’re in the market for a new car and haven’t been paying attention for the last few years. If you’re an investor in Carvana you’ll feel a little differently, as the company, once marked for dead, is making insane money.

There’s no country that looms, Bela Lugosi-like, over Europe quite like China. Now that a bunch of tariffs are about to go into effect the Chinese government is showing its teeth and threatening investment in countries that voted against them. Finally: Is that a g-g-g-ghost? No, Scooby, that’s just the Q3 Stellantis earnings report.

The Gap Between New And Used Cars Is Now $20,365 On Average

For more than 20 years, Edmunds has been tracking the average price of new cars and used cars. There are always gaps, of course, but they tend to stay fairly consistent over time as prices usually move together (cheaper new cars usually put downward pressure on used cars).

Here’s a chart showing the last few quarters:

The old patterns are familiar to anyone who regularly reads this website. Prices of new and used cars were slowly appreciating until the pandemic and then they both shot up as inventory suddenly vanished. Used cars, in particular, became outrageously priced, jumping from around $20k to $30k in just two years. New car pricing obviously also shot up at the same time.

So what happened? Good quality used cars are in short supply and will be for the foreseeable future, but prices have retreated a little bit. Here’s how Edmunds explains it:

Used vehicle prices dropped by 6.2% year over year to $27,177 on average, down from $28,960 in Q3 2023. The falling values are joined by steadiness in turnover at dealerships: The average days to turn — the number of days a vehicle sits on a dealer lot before a sale — for used vehicles was 36 days, up one day from a year prior.

Why are new car prices still so high? I know I keep tapping the sign marked “trimflation” and I apologize for being repetitive, but automakers used the chip shortage to their advantage and focused on making higher-trim vehicles and went on an MSRP-raising spree. Looking at recent vehicle announcements it seems like automakers are being cautious with their increases, and some EV prices are still coming down. With incentives up this is stalling price increases, which isn’t the same as prices going down.

Used car prices are generally more variable and can trend up or down faster than new cars. Plus, some automakers are just less willing to discount until they absolutely, positively have to, which is what happened with Stellantis up until recently. Eventually, incentive spending and product mix should bring the average price of new cars back to a normal level.

In the interim, Edmunds also found that people who purchased cars in the pre-pandemic period are simply not prepared for how expensive new cars are now:

[R]eal-world transaction data from Edmunds shows that even with the best of plans, many who say they prefer a new vehicle or are open to both options depending on the deal are likely to end up with a used car unless they adjust their expectations. At a minimum, 14% of “New vehicle” respondents and 38% of “Depends on the price/deal” respondents will end up with a used vehicle as there are no new vehicles within the $20,000-or-less tier that these respondents said they would be shopping.

Even when consumers are decided on the new vs. used vehicle shopping choice, their assumptions about what their monthly payments will look like do not match up to today’s reality. For respondents that indicated either “Used vehicle” or “Depends on the price/deal,” many are envisioning a monthly payment that is far more reminiscent of 2019 figures: 56% said they intend to make payments of $300 or less. The average monthly payment for a used vehicle in Q3 2024 was $548, compared to $413 in Q3 2019.

I still think this means there’s an opportunity for an automaker to sell a Dacia-like crossover that looks good and doesn’t cost that much. The Chevy Trax is close.

Carvana: We Lived, Bitch

We get things wrong. I get things wrong. A bunch of bad news and questionable loans led to headlines like “What Are The Best Cars To Cheaply Buy From Carvana If It Implodes?” and “How To Repurpose Carvana Vending Machine Towers To Build An Automotive Paradise” around here at the end of 2022.

Carvana was on the brink of collapse, and has since gone completely in the opposite direction. The company just reported its Q3 earnings, and the used car retailer did better than anyone imagined according to CNBC:

Carvana on Wednesday raised its 2024 earnings guidance after the online used-car retailer significantly topped Wall Street’s third-quarter expectations.

Here’s how the company performed in the third quarter, compared with average estimates compiled by LSEG:

• Earnings per share: 64 cents vs. 25 cents expected
  Revenue: $3.65 billion vs. $3.45 billion expected
  The company’s stock rose roughly 20% in after-hours trading Wednesday.

For 2024 guidance, Carvana said its adjusted earnings before interest, taxes, depreciation and amortization would be “significantly above the high end” of its previous target of $1 billion to $1.2 billion. The company reported $339 million in adjusted EBITDA last year.

If you’d have purchased Carvana stock when those headlines went up it would have been around $5 a share. It’s now trading at $250, so you’d have made 50x your investment in under two years. Never take stock advice from bloggers!

Stellantis Revenues Drop 27% In Q3

Struggling global automaker Stellantis posted net revenues of $36 billion in Q3 of 2024, which is somehow worse than the already low $39 billion analysts expected. That’s a lot of E-Rifters.

Things are bad in Europe, and they’re not great in China, though Stellantis isn’t a big player there yet. What’s the biggest issue? North America.

Per Bloomberg:

Stellantis is unique among European automakers in that its issues are most acute in North America. In September, leaders of the company’s US dealer network accused Tavares of damaging brands including Jeep, Dodge, Ram and Chrysler, and urged him to spend more money to clear inventory off their lots.

I don’t see that getting better anytime soon, though it would be nice if Stellantis had a great plan for North America that I could understand and articulate. Convince me, Carlos! Oh, side note: UAW President Shawn Fain just said that if his union has to strike it will “cripple” Stellantis, which isn’t hard to believe.

China Tells Car Companies To Slow Investments In Countries That Voted For Tariffs

The tariffs against Chinese automakers accused of unfairly subsidizing domestic EV production went into effect last night and, as predicted, China isn’t taking it lying down. The countries that voted for the tariffs generally have some kind of domestic car industry they want to protect or aren’t as reliant on Chinese investment. France, Poland, and Italy were the big countries in support of the move while Germany, which needs China, opposed the move. Many other countries abstained.

How is the Chinese government responding?

From Reuters:

Chinese automakers including BYD, SAIC, and Geely were told at a meeting held by the Ministry of Commerce on Oct. 10 that they should pause their heavy asset investment plans such as factories in countries that backed the proposal, said the people.

They declined to be named, as the meeting was not public.

Several foreign automakers also attended the meeting, where the participants were told to be prudent about their investments in countries that abstained from voting and were “encouraged” to invest in those that voted against the tariffs, the people said.

This was probably inevitable and, frankly, a spending war is way better than an actual one.

What I’m Listening To While Writing TMD

Oingo Boing’s “Dead Man’s Party” is on the Apple “Halloween Party” mix and my daughter surprisingly digs it so I’ve listened to this song 900 times this month. It still slaps. Also, based on the video, the song was used in the Rodney Dangerfield vehicle Back To School.

The Big Question

What are your feelings on car pricing right now? How long before new car prices become somewhat reasonable again?