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CNN: Used Cars Have Become Unaffordable

CNN: Used Cars Have Become Unaffordable

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Soaring interest rates and high prices are making used cars unaffordable for a growing number of car buyers. CarMax, the biggest used car dealer in the US, reported on Thursday that earnings had dropped 54% and they sold 6.4% fewer cars this quarter compared to a year ago, CNN reported.

According to the company, the reason is related to car affordability challenges due to low consumer confidence, rising interest rates, and widespread inflationary pressures.

Car retailer stocks hammered Thursday

Revenue results were far below predictions from analysts Refinitiv surveyed even though higher prices raised CarMax’s overall revenue. This worried investors and CarMax shares lost around a quarter of their value on Thursday. Other vehicle retailers’ shares also suffered. Carvana, one of CarMax’ main competitors, saw its shares drop by 23%.  

Computer chip shortage limits supply

Shortage of computer chips and other car parts has consistently been hiking car prices up for the last two years. At the same time, consumer demand is strong. Increased prices have been among the leading factors in overall inflationary pressure as around two-fifths of US households purchase a vehicle each year.

Used car prices hit a record high in January 2022

Used car prices are still 48% higher compared to August three years ago despite a slight fall in August this year from the record of January 2022. Prices of new vehicles reached a record in August 2022, up by almost a third since 2019.

CarMax’s average sale price per car in the quarter ending in August was $28,657, up almost 10% from a year earlier, but slightly down from the previous quarter.

The pressures on household budgets from rising prices of goods and services have also become a problem. CarMax CEO William Nash commented:  

Groceries are higher than ever. Consumer confidence, certainly during the quarter, all-time low as far as recent history, I mean even lower than the height of the pandemic. Consumers are prioritizing their spend a little differently.