Used Car Market: Who Are the Biggest Winners and Losers as Prices Drop?
With the price of food continuing to rise, at least consumers are seeing relief in one spending category: The price of used cars is dropping in line with rising interest rates and decreased consumer demand.
AutoNation released its third-quarter earnings on Oct. 27, which showed the stock price increasing — but not as much as analysts estimated. Revenue increased by just 4%, which Bloomberg reported was “roughly in line with the average of Wall Street projections.”
AutoNation owns the biggest chain of car dealerships, according to Bloomberg.
Hertz Global Holdings also said that profits are hurting since used cars are depreciating as inventories at dealerships increase and interest rates rise. Rental car companies win when used cars don’t depreciate as quickly in value, and more so when they appreciate (as they have been doing in the past year). In addition to renting cars, Hertz sells used cars from its stocks at auction.
“Depreciation is going to go up because of the net effect of used-car prices coming down,” Hertz CEO Stephen Scherr said in an Oct. 27 interview with Bloomberg.
Hertz reported third-quarter adjusted earnings of $1.08, down from $1.20 at this time last year and just slightly above analyst predictions, according to Bloomberg.
Consumers Can Benefit From Lower Prices on Used Cars
While smaller profit margins on used vehicles may spell bad news for car dealers and rental car companies, consumers can celebrate. If you can afford to pay cash for a used car — or secure 0% financing with a good credit score — you’ll benefit from lower prices without being subject to higher interest rates. And, as a secured loan with the vehicle as collateral, auto loans typically have lower interest rates than unsecured debt, such as credit cards.
In October 2022, U.S. News reported that the average interest rate for a used car loan (if you have a credit score of 750 or above) is 9.23%. You can save on your monthly payments and interest charges by putting more money down.
The drop in used car prices is also good news for the U.S. Federal Reserve, which has been steadily raising interest rates in hopes of slowly curbing inflation without sending the U.S. spiraling into a recession.
It’s possible Americans will see the price of other consumer goods falling in advance of the holidays, especially since economists are predicting the Fed will hike rates by another 75 basis points at its meeting on Nov. 2, 2022, Reuters reported.
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