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.
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?
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?
I literally just watched Back To School yet again just the other day
RE: used car prices
Somebody tell Canada that used car prices are supposed to be low. A 5-year-old Civic is sitting at 66% of a new one; a CR-V at closer to 80%. I get that we’re a different market up here in America’s Hat but the used market is pretty terrible right now.
Also: obligatory reminder that the lead singer for Oingo Boingo is none other than Danny Elfman. Yes, that Danny Elfman.
Have you checked other brands? Hondas tend to hold their value better, because they are (perceived to be,) more reliable. I don’t think you will find the same for Hyundais or Jeeps or whatever.
I chose those Hondas because they’re still the most popular cars in Canada. I’m not in the market, but my friend who just bought a new Hyundai Elantra (base model, stick) said it was that or a 5-year old Sonata with 100 km for the same price.
Out of curiosity I searched RAV4s, the other most common vehicle… yeah they’re comparable. Cheapest one I can find is 5-years old, 200K km asking $20K; same car new @ $36K.
I’m not saying there aren’t deals to be had, just that rolling the dice on a high-mileage used vehicle doesn’t currently seem to be worth the $$$ discount from new.
Hondas have issues and engine failures like any car. The problem is to FIND ONE WITH ALL SERVICE RECORDs…
I think we’ve just reached a point where some auto manufacturers and dealerships have used up all of their good will, and ended up looking like scumbags, honestly. It’s not a great look for your company when you’ve spent the last few years price-gouging your customers.
On top of that, older vehicles tend to be a lot more reliable, with less wearable parts that can go wrong, and really cost less money to keep on the road. There’s a sweet spot right now of around 5-10 years old vehicles being cheap, reliable, and just generally everything you really need.
Reasonable car pricing again?
We have a better chance of seeing Cheeto face serving hard time.
Shoot Liz Cheney?
Fuck him and his shit for brains.
A real POS, he is…Yoda
Pretty sure striking a cripple is frowned upon. If they push too hard none of their members will have jobs…
“Dead Man’s Party” is my fav Halloween song, and the only reason I have the CD.
Danny Elfman is awesome. I saw Oingo Boingo in Denver at the Rainbow Music Hall in the mid 80’s. Elfman went on to do many great things like movie scores and The Simpson’s theme.
Nightmare before Christmas is still one of my favorite movies to listen to.
I don’t think new car prices will ever be what I consider reasonable again. It would require such a seismic shift in product development. I think the certified pre-owned type programs are the long term plan rather than lower cost cars with tighter margins.
So based on the Autopian’s carvana reporting and now its turnaround, I should be buying Stellantis stock
“used” in Back to School? It’s an incredibly pivotal, several minutes-long scene. Rodney hires the band to play the biggest party the school has ever seen. Great fun is had, there are snorkeling adventures, several hearts are broken, Robert Downey Jr. shatters a windshield 100 yards away by being the worst sound board tech ever.
In his dorm room that he has somehow expanded into a penthouse suite.
RIP Burt Young!
“Hey inflation calculator, how much is something that was worth $16.3k in 2019 worth today?”
IC: “$20.1k”
Huh.
The methodology used to calculate inflation today uses techniques like hedonic adjustments and substitutions to paint a rosier picture than is the reality. This has been the case for more than 30 years.
Were inflation calculated the same way it was in the 1980s, you will find an hour of labor today buys less than half of what it did in 1968.
1968 was a long time ago. I had just graduated from high school and now I’ve been retired for over a decade. Real wages were stagnant from 1964 to 2004 (meaning that purchasing power didn’t change), and only up a bit (10% by 2018) since then, mostly for the highest paid workers..
Um.. link button doesn’t work..
https://www.pewresearch.org/short-reads/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/,
That’s if you use the official inflation rate.
The problem is that the official inflation rate has not been calculated the same after 1990 as before 1990.
Examples of what is not said in the official numbers: Per square foot, a new house now takes 3x as many hours of median wage labor to afford as it did in 1968. College education and healthcare, per hour of labor at median wage, are almost 10x as expensive vs then.
This is why 2-income households living paycheck to paycheck drowning in debt are now the norm, in spite of us being told that everyone is so much wealthier than ever. In 1968, a single-income earner could support a household and even avoid debt on the median wage. Today, the cost of basic necessities drives most people into debt and requires many more hours of work to afford, but the CPI doesn’t reflect this as a wage decrease because of the Hedonic adjustments, omissions of things like food/housing cost increases, and substitutions used in its pricing calculations. The instead CPI tells us that wages have been flat for close to half a century.
Another commonly used gaslight by government analysts and think tanks: using “real” household income to claim Americans are more well off vs 50+ years ago. Left unsaid is that the total amount of hours worked to “afford” that living standard has almost doubled thanks to the 2nd income, but the picture gets even worse when you consider the use of credit is no longer optional for even the most frugal of households.
Similar can be said for unemployment. There are tens of millions of people without work that want work and are quite literally unemployed, yet are not counted as being unemployed by the BLS U3 because they don’t fit the BLS’s definition of being unemployed.
There are 7 million healthy men of working age that aren’t even looking for a job. Apparently the largess of the taxpayers is keeping them fed & housed. They are not on the BLS radar either.
A lot of that has to do with the fact that they can’t find a job that pays a living wage. Most available jobs don’t.
The law of supply and demand stipulates that wages should rise to attract labor when there is a shortage of labor. But that is not happening.
A large number of ‘available’ jobs are also fake. A lot of people have given up trying to find work at all.
When I was unemployed, officially unemployment was less than 4%. The BLS certainly didn’t count me among the unemployed in its statistics, because I didn’t meet its official definition of unemployed. Over a year and a half I applied to literally thousands of places and couldn’t get anyone to hire me, until I finally got a part time minimum wage job washing dishes at a restaurant. I have a degree in electrical engineering and at the time had 8 years of experience as an electrical engineer. I bet I was the only dishwasher on Earth that commuted in a custom-built highly-efficient electric vehicle that I built from the ground up. It took another year and a half and thousands of more applications before I landed my current job at an engineering firm. Now I make 6 figures and am so busy I don’t get a break. But I certainly didn’t choose to be unemployed for such a long period as my savings drained, and only begrudgingly took the dishwasher job out of desperation as it was literally the only opportunity that presented itself after wasting tens of hours a week for years applying to places, and I was glad just to get that.
But I can’t help but wonder if it was that hard for me to get work, how hard is it for someone without skills, education, connections, or experience to get work?
Hogwash.
“Hedonic adjustments “ and “substitutions” sound scary, but they’re necessary to track changes in performance (supply) and consumption (demand).
I’m sure if we tracked the same stuff – say the price of crappy, low hp cars with bench seats – these would be super expensive today. Who cares? No one males or buys them.
And purchasing power per hour of labor? I mean, I guess you can make up different definitions of inflation…
I get it: economic growth hasn’t been even and people experience inflation unevenly. But at the macro level it’s not a bad concept and is an actual thing.
A person needs a car that gets you from point A to point B and comes with a warrantee. The most basic options no longer exist as everything has moved upmarket, and the cheapest available options are complicated and expensive. Now you have to work more hours to obtain the most basic car available, than you would for an even more basic car that was available in the past.
For people at the low end of the wage scale, this means they can no longer afford a new car with a warrantee. They have to drive a used, less basic, more-difficult/expensive to repair car with more features than a car needs to have, and swipe the credit card for a $X,XXX repair when something breaks.
The official inflation data fails to capture this. Taken at face value, it would suggest the above problem doesn’t even exist. But it does.
Purchasing power per hour of labor makes a lot more sense in an effort to form a direct comparison between the affordability of products at different time periods. This is because the methodology used to calculate inflation has been inconsistent over the decades, making an accurate and direct comparison with the past impossible when using the official government inflation data. “What can I buy with how much labor?” is the real metric of importance. An hour of work today is still the same hour of work in 1968 from the standpoint of someone who must expend that hour laboring instead of doing something else that they want to do with that hour. And in the present day, in spite of massive increases in the productivity of labor, an hour of labor buys significantly less than it did in the past. More hours must be expended to afford a basic living standard than in the past, and the CPI data pushed fails to capture this reality that people are living.
That’s measuring something entirely different. Nobody’s saying inflation rates are capturing every problem. What they are saying is that inflation shows the change in prices given changing quality/features and consumption patterns.