"Kind of crazy"--how the booming US used car market is driving inflation

[mahatmakanejeeves]

“Kind of crazy”—how the booming US used car market is driving inflation

Supply constraints and soaring demand have made vehicle prices a key number for the Fed.

JAMES POLITI AND COLBY SMITH, FINANCIAL TIMES - 6/5/2021, 8:15 AM

{snip}

Policymakers insist the pressures will gradually abate, reinforcing their view that the broader inflationary trend will be mainly transitory. In a speech on Tuesday, Lael Brainard, a Fed governor, said that although the used vehicle cost pressures “may persist over the summer months, I expect them to fade and likely reverse somewhat in subsequent quarters.”

But while many economists agree the inflationary pressures are likely to be temporary, they also acknowledge that uncertainty over the economic outlook is huge; as the pandemic recedes across America, consumers are flush with savings and government payments while supply chains are strained by bottlenecks.

“We are seeing a level of stimulus that is essentially unprecedented in the last 50 years, plus other forms of support for spending. These are really uncharted waters and we have to be humble,” said Nathan Sheets, chief economist at PGIM Fixed Income and a former undersecretary at the US Treasury. “How sure am I that I am right that inflation is going to dissipate? Probably 80 percent, but that is still a pretty fat tail.”

The surge in prices is driven by the slowdown in new car production because of lockdowns and semiconductor shortages. ... In addition—unusually for a recession—the number of customers who defaulted on vehicle finance and had their car repossessed has declined, cutting off another source of supply for dealers such as {Carey Cherner, a 36-year-old used car dealer in Kensington, Maryland}. ... Demand, meanwhile, has boomed. Americans’ preferences have shifted away from public transport because of the pandemic. Stimulus measures have helped them to spend. And rental car companies that sold off their fleets as travel collapsed last year are now scrambling to rebuild them with used vehicles.

{snip}

© 2020 The Financial Times Ltd. All rights reserved. Not to be redistributed, copied, or modified in any way.

[MANative]

1. I bought a "demo" 2018 Hyundai Sonata Limited in June 2019

Had about 5K miles on it and every bell and whistle available. Paid $25K in cash. I have received no less than ten letters from the dealer offering me MORE than what I paid for it. Last one offered $27,500. Unreal. Still has under 20K miles on it and I love it, so not biting! Dealers are desperate for cars to sell, clearly.

[RainCaster]

2. I have a 20003 LS430 I'm tired of looking at

Local dealers are selling them for fast more than I thought possible. Nice car, but it uses as much gas as my F150 4x4. It looks like used cars are as inflated as house prices.