Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Used Car Market
Transcript
- Lucas: So you’re looking for a used car right now, and the first thing you notice is that prices aren’t really coming down — even though we’re in this weird mix of high inflation and slow growth that everyone’s calling stagflation. Luna: Yeah, I’ve heard people say, ‘Why aren’t used cars getting cheaper? The economy is sluggish, rates are high…’ It’s a fair question. Lucas: It is. And the short answer is that the supply side is still broken from the pandemic in a way that’s taking years to unwind. Let me give you a number: the average age of a car on U.S. roads right now is 14.2 years. That’s a record. Luna: Fourteen point two years. That means people are holding onto their cars longer than ever. Lucas: Exactly. And that directly constrains the supply of used cars coming to market. Normally, a three-to-five-year-old car comes from a lease return or a trade-in when someone buys new. But new car production was hammered in 2020 through 2022 — semiconductor shortages, plant shutdowns. So there are simply fewer relatively young used cars available now. Luna: So the pipeline is thinner. And that’s a structural thing, not a temporary blip? Lucas: Right. It’s going to take another couple of years for that to normalize. Meanwhile, demand is still there — because new cars are expensive, financing is expensive, and people who need a vehicle are forced into the used market. The result is that prices for late-model used cars — say, 2021 to 2023 — are still elevated. According to recent wholesale auction data, dealers are paying above Manheim Market Report values for that age bracket. Luna: I saw something about fleet companies too — rental car agencies and corporate fleets are holding their vehicles longer as well, right? Lucas: That’s a huge factor. During the pandemic, rental companies sold off huge chunks of their fleets to stay afloat. Then when travel came back, they couldn’t buy enough new cars quickly, so they started keeping cars for 18 months, 24 months, even longer. That means fewer ex-rental cars hitting the auction lanes. And fleet sales are a major source of used supply — especially for the two-to-four-year-old segment. Luna: So we’ve got a supply crunch that’s stubbornly persistent. But what about the demand side? With interest rates where they are — the Fed’s been holding — doesn’t that cool off buyers? Lucas: It does, but unevenly. Higher rates mean higher monthly payments, so buyers trade down. Instead of buying a three-year-old car, they buy a seven-year-old car. That pushes up prices for older vehicles too. You get a kind of price ladder — compression at the top, inflation at the bottom. In fact, the wholesale price index for cars eight to twelve years old has actually risen year-over-year, even as some newer models have softened. Luna: That’s counterintuitive. You’d think the oldest cars would be the cheapest, but if everyone’s shifting down, they become more expensive. Lucas: Exactly. And look at the broader economic context: the S&P 500 is at 7,454, gold is at $4,122 — investors are hedging against inflation and uncertainty. But for the average person, the stagflation squeeze means their purchasing power is down. So they’re making do with an older car, and paying more for it than they would have a few years ago. Luna: The CPI data we’ve been watching — the all-items index is at 334, up from 332.4 in April. That’s still creeping up. And core CPI at 336.1. So inflation isn’t vanquished. Lucas: Right. And while the headline unemployment rate is 4.2 percent, which is low historically, the labor force participation rate just hit a fifty-year low outside of the Covid period. That’s people giving up looking for work. That’s a stagflation hallmark — weak growth, persistent inflation, and a labor market that looks okay on the surface but has cracks underneath. Luna: So how does all of this affect someone who actually needs to buy a used car today? What’s your advice? Lucas: First, be prepared to pay a premium for reliability. The sweet spot might be a car that’s four to six years old with good maintenance records — not the newest, not the oldest. Those are being bid up less than the three-year-old models. Also, consider private-party sales over dealer lots. Dealers are paying high wholesale prices and passing that on. Private sellers sometimes haven’t adjusted their expectations yet. Luna: And what about financing? The average auto loan rate for a used car is over 8 percent now, I think. Lucas: Yeah, it’s around 8.5 percent for a sixty-month loan on a used vehicle. So the monthly payment math is brutal. One strategy is to shorten the loan term if you can — take a forty-eight-month loan at a slightly lower rate, and try to put more down. But I know that’s not feasible for everyone. Luna: It’s a tough market. And it ties into this broader stagflation theme: everything is more expensive, but wages aren’t keeping up, so people compromise. Lucas: Exactly. And that’s why this episode — and this whole series — is valuable. We’re trying to make sense of an economy that doesn’t follow the old rules. If walking through the economy with us has made something click for you, and you’d like to support the show staying ad-free, you can do that at buy me a coffee dot com slash fexingo. It’s a small way to keep these conversations going. Luna: Yeah, we really appreciate the listeners who’ve chipped in. It helps cover the research time and the hosting costs, and it means we don’t have to run ads. Lucas: Absolutely. So back to used cars — one more thing I want to mention. There’s a potential shift coming: as more electric vehicles enter the used market, some of them are depreciating faster than gas cars because of battery concerns. That could create an opportunity for bargain hunters, but also a risk if you’re not careful. Luna: That’s a whole other episode. But for now, the takeaway is: used car prices are sticky because supply is structurally tight, and higher rates are shifting demand to older vehicles, creating a price ladder. If you’re buying, do your homework on the specific model’s reliability and total cost of ownership. Lucas: And if you’re selling, this might actually be a decent time — especially if you have a well-maintained, late-model gas car. The market still values that. Thanks for listening, and we’ll be back next time with another look at how stagflation is reshaping something you probably interact with every day.