Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating the Cost of a Secondhand Car
Transcript
- Lucas: So if you've been putting off buying a used car because prices felt insane — your timing might finally be working in your favor. Luna: Because the data is starting to show that wage growth is actually overtaking used car prices for the first time in years. Lucas: Exactly. And I want to be specific here. The latest average hourly earnings number, from May, is $37.50 an hour. That's up about 0.2 percent from April. Meanwhile, the used car and truck component of the CPI has fallen for six straight months. Luna: That's a pretty clear trend line. And I think it's worth saying — if walking through the economy with us has made something click, the way we keep this ad-free is listener support. If today's episode is useful, you can find us at buy me a coffee dot com slash fexingo. Lucas: Totally. It's a small gesture that makes a big difference for us. Anyway — back to those used car numbers. The Manheim Used Vehicle Index, which tracks wholesale auction prices, has dropped something like 12 percent from its peak two years ago. Luna: And that wholesale drop is now showing up at retail lots. I was looking at Carmax's last quarterly report — they said average retail selling price was down about 8 percent year-over-year. Lucas: Right. So we're in a situation where the average raise — call it 4, 5 percent over the last year — is actually gaining ground on the price of a used car. That hasn't been true since before the pandemic. Luna: Let's talk about why this is happening. I mean, what changed? Wasn't the chip shortage supposed to keep new car supply tight forever? Lucas: That narrative has really flipped. New car inventory has been recovering steadily. The automakers have gotten better at sourcing chips, and they've also started building fewer stripped-down models. So more new cars are coming onto lots, which means less demand pulling into the used market. Luna: And then there's the rental fleet effect. During the pandemic, Hertz and Avis sold off huge chunks of their fleets. Now they're buying again, but they're being much more disciplined. They're not over-ordering. Lucas: That's a huge point. Rental companies are a big source of off-lease used cars. When they buy fewer new cars, the supply of two- and three-year-old off-lease vehicles shrinks. But that's been priced in for a while. What's new is that demand from consumers is softening. Luna: Because people are feeling the pinch elsewhere. Rents, insurance, food — all still high. So they're holding onto their cars longer. Lucas: Exactly. The average age of a vehicle on the road in the US is now about 12.6 years, which is a record. People aren't trading in as often. That reduces the supply of used cars hitting the market, but it also reduces demand from buyers who would normally upgrade. So the net effect is softer prices. Luna: So if you're a buyer right now, what's the smart play? Should you buy from a dealer, a private seller, or something like Carvana? Lucas: I think the biggest shift is that you now have negotiating power again. For the last three years, dealers had all the leverage. If you didn't buy at asking, someone else would. That's no longer the case. I've seen reports that dealers are sitting on higher days' supply of used inventory than normal. Luna: And Carvana and Vroom are in a very different place than they were two years ago. Carvana had to restructure its debt, and they're being much more careful about how much they pay at auction. Lucas: Right. Their whole model was built on buying low and selling high with convenience. But when wholesale prices were falling, they got caught holding inventory that lost value. Now they're buying less aggressively, which pushes wholesale prices down further. Luna: So there's a kind of virtuous cycle for buyers right now. Wages up, used car prices down. But how much further can this go? I mean, are we back to pre-pandemic price levels? Lucas: Not even close. A typical used car is still about 30 percent more expensive than it was in 2019. So we're not talking about a return to normal. But we are talking about a real improvement in affordability, especially if your wage has gone up 15 or 20 percent over the last three years. Luna: And that's the key metric, right? It's not just the price — it's the ratio of price to income. And for the first time in a long time, that ratio is improving. Lucas: Exactly. The median weekly earnings number, which is a bit older — from early 2025 — was $1,204. That's up about 4 percent from a year earlier. So if you combine that with a 6 or 7 percent drop in used car prices, you're looking at a real gain in purchasing power of maybe 10 percent. Luna: That's meaningful. And it's not just about the headline CPI number. This is a category where the average person actually feels the difference. Lucas: Let me give a concrete example. Say you were looking at a 2019 Toyota Camry two years ago. It might have been priced around $28,000 at a dealer. Today, that same car, same mileage bracket, might be $24,000. And your paycheck is about 6 percent bigger. So the car costs 14 percent less in terms of hours worked. Luna: That's the kind of math that actually matters. And it's not just Toyotas — I've seen similar trends across most mainstream brands. Luxury used cars have actually held up a bit better because the buyers there are less price-sensitive. Lucas: True. The divergence between mainstream and luxury is interesting. But for the average listener, the takeaway is: if you need a used car, you have more leverage than you've had in five years. You can negotiate. You can walk away. You can wait for the next auction cycle. Luna: And one thing to watch out for — don't get too focused on the monthly payment. With interest rates still elevated, a lower price doesn't always mean a lower payment if the loan terms stretch out. But the total cost of ownership is definitely moving in the right direction. Lucas: That's a great point. Loan rates for used cars are still north of 7 percent on average, which is high historically. So if you can pay cash or get a shorter loan, you'll capture more of the benefit from falling prices. Luna: What about the CPO market? Certified pre-owned — is that worth the premium right now? Lucas: I think CPO makes sense if you're buying a car from a brand with a good warranty and you plan to keep it for a while. The premium over non-certified has narrowed a bit because overall prices are down. So you're getting a better deal on the warranty than you would have two years ago. Luna: And the quality of used cars is actually pretty good right now because so many vehicles from the 2021 and 2022 model years are coming off lease with low mileage. People drove less during the pandemic, so those cars have more life left. Lucas: Exactly. The supply of off-lease cars is a bit of a silver lining from the production disruptions. Fewer new cars were built, but the ones that were built got driven less. So the used cars hitting the market now are often in better shape than normal. Luna: So to sum up: wages are up, used car prices are down, and the combination gives the buyer real power for the first time in years. But the window might not stay open forever. Lucas: Right. If the economy slows more sharply, wages could stall. And if tariffs or supply disruptions hit again, used car prices could rebound. So if you've been waiting, the evidence says the timing is as good as it's been since 2020.