Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Used Car Market
Transcript
- Lucas: So the June CPI came in at 3.5 percent year-over-year, a bit softer than expected, and wholesale prices actually declined 0.3 percent on that big drop in gasoline. But here's what caught my eye — the Manheim Used Vehicle Index dropped 4.2 percent year-over-year. That's the biggest annual decline since early 2024. Luna: Wait — used car prices are falling? I feel like every time I walk past a dealership lot, the sticker shock is still very real. Lucas: Right, and that's the gap we need to talk about. The Manheim Index tracks wholesale auction prices — what dealers pay to buy used cars. That's down. But retail prices, what you and I see on the lot, they've been stickier. Not falling as fast. And the reason is pure stagflation math. Luna: Let me guess — financing costs? Lucas: Exactly. The average used car loan APR is now 9.8 percent, according to the latest data from Edmunds. That's up from 6.7 percent just two years ago. A dealer might have bought a 2021 Honda Accord at auction for $24,000, but to carry that on their floor plan — their inventory loan — they're paying north of 10 percent interest. So the longer the car sits, the more it costs them. Luna: So they're caught between a wholesale price that's dropping and a floor plan cost that's rising. No wonder retail prices aren't coming down faster. Lucas: Exactly. And here's where the stagflation angle gets specific. Look at the two ends of the market. A 2023 Toyota Camry — the sensible sedan — its Manheim value dropped about 5 percent in June alone. Why? Because when gasoline prices fall, like they did in June — gasoline was down 3.8 percent month-over-month — buyers shift back toward trucks and SUVs. So demand for sedans softens. Luna: And the opposite happens for the Ford F-150. Lucas: Right. A 2022 F-150 XLT actually appreciated 1.2 percent in the same period. That's rare in a falling market. But it makes sense — lower gas prices make large vehicles more affordable to run, even if the purchase price is higher. So we get this bifurcation: sedans declining, trucks holding value. That's a stagflation signal. Luna: It's almost like the 1970s all over again, but with a modern twist. Back then, people downsized to compacts because of gas lines. Now, with gas cheaper and wages barely keeping up, people are making different trade-offs. Lucas: Yeah. And speaking of wages — average hourly earnings rose to $37.60 in June, up 2.4 percent year-over-year. That's below the 3.5 percent CPI. So real wages are still negative. That's the slow-growth, high-inflation combo. So buyers are stretching loan terms to 72, even 84 months, just to keep the monthly payment manageable. Luna: Which means they're paying more in interest over the life of the loan than they would have five years ago. The average used car loan amount is now over $30,000, I think I saw. Lucas: Thirty-one thousand four hundred, according to Experian. At 9.8 percent for 72 months, that's about $580 a month. Total interest over the loan: over $10,000. It's brutal. Luna: And that's for a used car. So the market is in this weird place where the underlying asset is getting cheaper, but the cost of owning it is going up. Lucas: That's a perfect way to put it. And it's exactly the kind of distortion stagflation creates. The Manheim Index is down, but the consumer isn't feeling the relief. Because the channel — dealers, financing, inventory carrying costs — all of that is more expensive now. Luna: It's like walking through the economy with us — sometimes it makes a weird pattern click. And if this show has helped you see something clearly, a couple of dollars a month is genuinely what keeps these going. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. Lucas: Yeah, that's the whole reason we keep it ad-free. Small amounts from listeners who find it useful. It really adds up. Luna: Alright, back to the cars. So what does this mean for someone trying to buy a used car right now? Lucas: Well, the best advice I've heard is to look for models that are three to four years old — that's the sweet spot where the wholesale decline is steepest. A 2020 or 2021 sedan, especially a Camry or a Honda Civic, is probably at a better price now than it was a year ago. But if you want a truck or an SUV, you're going to pay a premium. Luna: And don't forget to shop around for financing. Credit unions are still offering rates about 1.5 points below the national average. Lucas: Great point. Also, consider a shorter loan term if you can swing the payment. The difference between 60 and 72 months at 9.8 percent is about $3,000 in interest on a $30,000 loan. That's real money when wages are barely keeping up with inflation. Luna: So to sum up: wholesale used car prices are falling, but retail isn't following because financing costs are eating the savings. The market is splitting between sedans and trucks. And the average buyer is getting squeezed. Lucas: Exactly. And that squeeze — that's the stagflation signature. Slower growth, higher costs, and a market that doesn't feel like the numbers say it should. Luna: Makes you wonder what happens if the Fed has to cut rates in this environment. Would that help the car market or just reignite price pressures? Lucas: That's the million-dollar question. If they cut, financing gets cheaper — maybe retail prices stabilize. But if inflation stays sticky, any cut could be short-lived. Either way, the used car market is going to be a fascinating canary for the rest of the economy. Luna: Alright, next time, let's look at the commercial real estate side. I've heard office vacancies are hitting new records. Lucas: Perfect topic. I'll pull the data. For now, thanks for sticking with us.