US Used Car Sales Jump More Than 25 Percent in July

Used cars displayed at a dealership in New York on June 10, 2022. Spencer Platt/Getty Images

The sale of used vehicles in the United States rose by more than 25 percent in July, partly owing to a resumption of activities following a cyberattack in June that widely affected car dealership operations, according to auto services provider Cox Automotive.

“Retail used-vehicle sales in July increased from June, rising by 27.6 percent month over month,” Cox Automotive said in an Aug. 150 statement.

A total of 1.6 million used vehicles were sold by retailers, up by 16.5 percent from a year back.

“As anticipated, we are continuing to see the impacts of the sales and inventory reporting disruptions due to the CDK outage,” said Scott Vanner, senior analyst of Economic and Industry Insights at Cox Automotive.

The outage was caused by a cyberattack in June against CDK Global, a software firm serving more than 15,000 car dealerships in the United States. The company’s software is used to manage sales, inventory, customer support, and other aspects of dealership operations.

According to Cox, cyberattack disruptions resulted in inflating the “day’s supply” level of inventory and lowering sales.

Day’s supply refers to how long the current inventory on hand will last at the ongoing pace of sales. Disruptions in operations and the resulting lower sales mean more inventory on hand. Day’s supply for June was 53 days, which declined to 41 in July.

The “noticeable increase” in used vehicle sales last month likely signals “a healthy used-vehicle retail market plus some recovery of lost sales from June,” according to Vanner.

The July surge in sales follows a decline in used vehicle prices in the first half of the year, with the Manheim Used Vehicle Value Index (MUVVI) falling by 8.9 percent year-over-year during this period.

Jonathan Smoke, chief economist at Cox Automotive, suggested that the decline in used-vehicle prices “may be nearing its floor, which should help stabilize the market through the summer months and rebound in the back half of the year.”

“Between increasing demand, slowing price declines, and slightly better interest rates, all of our indicators point to an optimistic outlook for the rest of the year. We may even see a few months of growth before the end of 2024,” he predicted.

Interest Rate Effect

Even though used-car prices have declined, high interest rates make the cost of buying them expensive for many buyers.

In the first quarter of 2024, the average interest rate for used cars was 11.93 percent, nearly double that of 6.73 percent for new vehicles, according to data from Nerdwallet.

For used cars to become cheaper and more attractive, interest rates on auto loans have to come down. For this, the Federal Reserve has to bring down its benchmark interest rates that have remained elevated for too long. Auto lenders usually set their loan rates taking into consideration the federal fund rates.

The Federal Reserve has kept its benchmark rate in a range of between 5.25 percent and 5.5 percent for more than a year. The next meeting to decide interest rates is set for September 17 and 18. A majority of interest rate traders are expecting a 0.25 percentage-point rate cut to be announced in the next month’s meeting, according to data from CME FedWatch tool.

The used car market has faced challenges compared with the new-vehicles market over the past years, according to a July industry report from Cars Commerce.

Supply levels of new vehicles are continuing to increase, keeping prices in this segment steady. In contrast, prices of used cars have fallen, with the segment facing a shortage, mainly of low-mileage, lightly used vehicles.

Used vehicles priced below $20,000 can average 93,000 odometer miles, up by 33 percent in the past five years.

“These high-mileage vehicles may require significant service to remain roadworthy,” the report reads.

“The shortage of low-mileage, lightly used inventory is especially noticeable in the higher-end used-vehicle market. For the over-$50,000 used segment, the average price is $77,000, which is more than the average cost of a new luxury vehicle.”