Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / How Raises Are Finally Beating the Cost of a Used Car
Transcript
- Lucas: Luna, I was looking at Manheim's used vehicle value index this morning, and the numbers are kind of wild. The index is down more than twelve percent from its 2022 peak, and it's basically back to where it was in mid-2021. That's a big deal for anyone who needs to buy a car. Luna: Twelve percent off a car is serious money. I remember when my cousin bought a used sedan in 2022 and paid nearly sticker price for a three-year-old model. It felt like the whole market had gone bonkers. Lucas: It did, and that's actually the thread we're pulling today. For a while, it seemed like prices would never catch up with wages, but now we're seeing this slow but steady rebalancing. Average hourly earnings are around thirty-seven dollars and sixty cents, and used car prices are cooling. It's one of those rare moments where the worker's side of the ledger is improving. Luna: Yeah, and you know, before we go deeper, a lot of folks have asked how they can support the show while we keep doing these deep dives. If you're finding these episodes helpful, you can buy us a coffee at buy me a coffee dot com slash fexingo. It's a small way to keep things ad-free and it genuinely makes a difference. Lucas: Exactly, no pressure, but every little bit helps us keep digging into the numbers. Now, back to cars. So why exactly are prices dropping? I mean, it's not like there's a glut of used cars sitting on lots. Luna: Right, I thought inventory was still tight. What's driving the decline? Lucas: A few things. First, the crazy spike in 2021 and 2022 was partly a supply chain hangover. Chip shortages and rental fleets getting rid of cars at auction. That's normalized. Second, interest rates have stayed higher for longer, so dealers are willing to discount to move units. And third, more people are holding onto their cars longer, which sounds counterintuitive, but it means fewer trade-ins and less pressure on new car prices, which cascades down. Luna: So it's a combination of supply chain recovery and demand softening. But wages are still growing, right? I mean, the last jobs report was a bit of a letdown, but average hourly earnings are up from last year. Lucas: Yeah, we saw the July jobs report come in softer than expected, with the economy actually losing twenty-three thousand jobs. But wage growth hasn't collapsed. The employment cost index for wages is still climbing, up to 179 from 177.5. So your paycheck is still moving, and now the thing you're buying is getting cheaper. Luna: That's the sweet spot. I guess the question is, how much of a real improvement is this for the average buyer? If I'm looking at a fifteen thousand dollar used car, a twelve percent drop is about eighteen hundred dollars. Lucas: Exactly. And that's not nothing. It's like getting a few months of groceries covered. But there's a nuance. The Manheim index is a wholesale measure. Retail prices at dealerships are stickier, but they're starting to follow. If you look at typical transaction prices for used vehicles, they're down maybe six or seven percent from the peak. Still meaningful. Luna: So the best deals might be at wholesale auctions, not on the lot. But for a regular person, they're buying retail. So how do they actually capture this? Lucas: That's the practical part. You have to be patient and willing to negotiate. Dealers have more room to move now because their financing costs are higher. So they'd rather cut the price than pay the floorplan interest. And you can use the wholesale index as a negotiating lever. If you know the average wholesale price is down twelve percent, you can push back on a retail quote that hasn't moved. Luna: That's a smart tactic. But let's talk about the broader picture. Is this a sign that inflation is truly under control, or is it just one category? I mean, CPI is actually down a bit, from 333.98 to 332.6. That's rare. Lucas: It's a good sign, but I wouldn't pop the champagne yet. Core CPI is still elevated, and the ten-year breakeven inflation rate ticked up to 2.29 percent. The Fed is watching the Wednesday CPI report closely. If used car prices keep falling, that helps headline numbers, but services inflation is stickier. Luna: So this is a category-specific win. But for the worker, it's tangible. You feel it when you go to buy a car. Lucas: Exactly. And this is actually the theme we've been tracking all season. Your raise is finally beating the cost of specific things. We've done groceries, rent, haircuts, even weddings. Now it's cars. And the reason it matters is that a car is often the second biggest purchase a household makes after a home. So when that gets more affordable, it's a big deal for purchasing power. Luna: And I guess with a mortgage still out of reach for many, a used car is a way to get some mobility without breaking the bank. What about electric vehicles? Are used EVs seeing similar drops? Lucas: That's a good question. Used EV prices have actually fallen even harder, partly because of the federal tax credit that only applies to new ones, and partly because the technology is evolving fast, so older models depreciate faster. But that's a double-edged sword. You can get a bargain, but you might face battery range anxiety and fewer charging options. So it's a trade-off. Luna: Right, and that's a whole other episode. For now, let's focus on the internal combustion engine. So is this a permanent shift, or could prices spike again? Lucas: I'd say it's more structural. The supply chain issues are resolved, rental fleets are stable, and automakers are producing more affordable models, which pulls people away from the used market. Unless there's a major economic shock, I don't see a return to the 2022 insanity. But of course, the Fed's next moves could change things. Luna: So if the Fed cuts rates, that could make car loans cheaper, which might actually push prices back up as demand increases. Lucas: Exactly. That's the twist. Cheaper financing could boost demand and offer sellers less incentive to discount. But right now, the Fed is in a holding pattern. The July jobs report was weak, but the market is still pricing in a cut in September, I think, though nothing is guaranteed. If they do cut, the used car market might bottom out and start to stabilize. Luna: For the buyer, that means the window of opportunity might be now. If you're in the market, should you pull the trigger or wait? Lucas: I would say, if you find a car that fits your budget and you're comfortable with the payment, go for it. Waiting for the perfect bottom is risky. But if you can negotiate a good deal now, you're likely getting a better price than you would have six months ago, and probably better than you will six months from now if rates drop. Luna: That's a practical takeaway. And it's a nice counterpoint to all the doom and gloom about affordability. For once, the worker has some leverage. Lucas: And that's the thing we want to leave you with. The economy is full of these small victories that don't make headlines. Used car prices are down, wages are up, and that combination is a real win for everyday people. It's worth paying attention to. Luna: Well said. So if you're in the market, maybe start browsing. And if you enjoyed this episode, remember you can support us at buy me a coffee dot com slash fexingo. We'll be back with more numbers and insights. Lucas: Yeah, and next time we're talking about something else that your raise is finally beating. Stay tuned.