Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Car Trade-In Value
Transcript
- Lucas: So I was helping a friend shop for a used SUV over the weekend, and something caught my eye: the trade-in offers on his current car were way lower than what Kelly Blue Book was showing just three months ago. Luna: That tracks. I've been seeing headlines about used car prices falling, but it feels like trade-in values are dropping even faster. Lucas: Exactly. And it's not just anecdotal. The latest CPI data from May shows used car and truck prices down about 2.3 percent year-over-year. But the wholesale market, where dealers sell trade-ins, has been falling more sharply. That spread is the hidden inflation hit. Lucas: Look, we do this show ad-free, and we want to keep it that way. If conversations like this help you think about your money differently, you can support the show at buy me a coffee dot com slash fexingo. No pressure, just a link if you find value here. Luna: Yeah, it's a small way to keep the show independent. And now back to that trade-in trap — why are dealers lowballing so much? Lucas: It really comes down to two things: supply and financing. New car inventory has mostly recovered, so dealers have less incentive to stock used cars. Plus, with the Fed funds rate at 3.63 percent, floor-plan financing — the loans dealers take to hold inventory — is expensive. They want to turn cars fast, and that means paying less on trade-in. Luna: So it's not just a demand problem. It's a cost of carry problem for dealers. Lucas: Exactly. And that's hitting certain segments harder. Large SUVs and trucks, which are gas guzzlers, are seeing steeper depreciation because fuel prices are still elevated and the move toward EVs is shifting buyer preferences. A three-year-old Ford F-150 might lose another 5 percent of its value this year compared to last. Luna: But what about the guy who bought a used car during the pandemic peak? Is he just underwater now? Lucas: In many cases, yes. If you bought a two-year-old sedan in early 2022 at a premium, its trade-in value today could be 20 to 25 percent lower than what you paid. That's real wealth erosion. And it matters because for most people, a car is one of their largest assets. Luna: That's crazy. So what's the move if you need to sell or trade in soon? Lucas: I'd say two things. First, get multiple offers — don't just take the dealer's first number. Online buyers like CarMax or Carvana can sometimes offer more because they have different cost structures. Second, if you can wait, wait. The ten-year breakeven inflation rate is at 2.23 percent, which suggests the market expects inflation to moderate. That could mean more stable used car prices later this year. Luna: But isn't that breakeven rate down from where it was? Doesn't that signal weaker demand? Lucas: It is lower than the peak in 2022, yes. But 2.23 percent is still above the Fed's 2 percent target. So we're in this weird zone where inflation is cooling but not gone. For cars, that means prices are falling from very high levels, but they're not crashing. The real risk is depreciation accelerating if we hit a recession. Luna: And that's where gold and silver come in as hedges, right? But silver just took a huge hit — down 12 percent in the last five days. Lucas: Right. Silver has been volatile. It's down to around 62 dollars an ounce. That's a bigger drop than gold, which is off about 4.6 percent. The theory is that silver has more industrial demand, so if the economy slows, silver gets hit harder. But for a car trade-in, that doesn't help directly. Luna: So if I'm a listener with a car I want to trade, what's the one concrete thing you'd tell them? Lucas: Go get a trade-in offer today, but don't accept it. Use it as a baseline. Then check CarMax and a competing dealer. If you can wait three months, lease a cheap car or use public transit for a bit. The market might stabilize, and you'll get a better deal. Also, consider selling privately — you'll capture more of the retail price. Luna: And if they're buying a car instead of selling? Lucas: Buy used, but buy a model that's depreciated already. A three-year-old Honda Accord or Toyota Camry has already taken the biggest hit. You'll lose less value over the next few years. Avoid heavy trucks or luxury sedans — those are dropping fastest. Luna: Makes sense. It's like picking the right inflation hedge for your specific situation. Lucas: Exactly. Inflation isn't one number. Your personal inflation rate depends on what you buy, and for most people, car depreciation is a major component. Understanding that spread — between CPI and wholesale — can save you thousands. Luna: Alright, so bottom line: trade-in values are weak now because of dealer financing costs and supply. If you can wait, wait. If not, shop around. And don't forget to check buy me a coffee dot com slash fexingo if the show helps you. Lucas: Nailed it. Thanks, Luna. Next time, we'll look at how inflation is hitting your streaming subscriptions — prices are climbing faster than you think. Luna: Can't wait. See you next time.