As we saw in yesterday's CPI release:
The index for new vehicles increased 0.2 percent in March after rising 0.3 percent the previous month. The index for used cars and trucks fell 3.8 percent in March, its second consecutive monthly decline after a series of large increases. The index for communication was also among those few indexes which declined over the month, falling 0.5 percent.
Unfortunately used vehicles are only weighted at 4.167% of the basket so a 3.8% decline only decreases the overall CPI by 0.158%. Compare to the weighting of "Rent of Shelter" at 32.319% where price increases are still flowing and you can see we won't be back to the Fed's 2% inflation target any time soon.
The other point to make is that the loss of purchasing power tends to be permanent unless you go into a deflationary depression.
A twofer from Wolf Street. First up, from April 12, the headliner:
CarMax ran into resistance against ridiculous prices. The used-car startups face an existential crisis. Vroom shares collapsed 97%.
When it comes to publicly traded used vehicle dealers, CarMax is the adult in the room. Online-only used-vehicle IPOs and SPACs Carvana, Vroom, and Shift Technologies are losing money hand-over-fist and might never make any money selling used cars because they weren’t designed to be profitable. Their shares have totally collapsed in a spectacular demonstration of how Wall Street is systematically cleaning out stock jockeys that ended up with this stuff directly or indirectly.
But CarMax makes money. And yet its earnings report today caused its already beaten down shares to plunge nearly 10%, to $93.33, where they’d first been in 2019. They’re down 40% from the November high. The earnings report pointed at the problem that the industry itself created, while customers, befuddled by an inflationary mindset, went along with it: Ridiculous prices. But enough customers are suddenly resisting. Before we get to CarMax, let’s have a look at the three used vehicle dealers whose shares have totally collapsed.
Vroom [VRM] started trading following its enormously hyped IPO in June 2020. Its shares have now collapsed by 97% from the high in September 2020 and closed today at $2.08, another new all-time low (data via YCharts):
And April 8, ahead of the CPI report:
Used Vehicle Prices Finally Drop but Won’t Plunge All the Way Back to Earth in this Crazy Environment. Here’s Why
Despite the jump in tax refunds, crucial for down payments, used car & truck retail sales fell, and auction prices dipped as price resistance set in.
The number of used vehicles sold retail by dealers in March fell by 15% from March last year, according to estimates by Cox Automotive, based on its Dealertrack data. Blame slow tax refunds? Blame the unsustainable crazy price spike? So let’s see.
Tax refunds are crucial to the used car business this time of the year. They make great down payments. And the whole industry counts on them and parses them.
Based on IRS data through April 1, the IRS issued $204 billion in refunds, up by 13.4% from the same period last year, with 98% being direct-deposited into the taxpayers’ bank account, and so they already got this money.
The number of refunds issued rose 1.7% from a year ago, to 63.36 million refunds through April 1. The average refund amount jumped by 11.5%, to $3,226, a great down payment for a car.
So, 1.7% more people received their refunds than last year at this time, and they received much bigger refunds on average, making for potentially more and bigger down payments – and that’s why the number of used vehicles sold in March should have at least matched last year’s total. But sales fell by 15%.
And that’s where the crazy price spikes come in. The entire industry has been shaking its head about them: That retail customers paid those prices though there was plenty of supply; that dealers then bid up prices at wholesale auctions to ridiculous levels, knowing that they could pass on those prices to retail customers and make massive per-vehicle gross profits; and that lenders accepted the ridiculous collateral values and lent. And everyone, astonished as they were about this bizarre phenomenon, played along for as long as possible....
....MUCH MORE
