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Used car prices are weirdly spiking, and tariffs may be to blame

Robert Ferris
The prices at the world's largest used car auction have been better than usual lately, especially since President Donald Trump started pushing for new tariffs on imported vehicles, parts as well as the steel and aluminium used to make cars.

MANHEIM, PA — Surrounded by the quiet corn fields of Pennsylvania's Amish country are 400 acres of paved lots packed with used cars that make up the world's largest used auto auction here.

The voices of dozens of auctioneers across 36 lanes simultaneously rattle off prices, makes and models in a rhythmic repetition. "SOLD!" is cried out with each purchase — at least once every 60 seconds, 500,000 times a year.

The prices at the Manheim auto auction have been better than usual lately, especially since President Donald Trump started pushing for new tariffs on imported vehicles, parts as well as the steel and aluminum used to make cars, said Jonathan Smoke, the chief economist of Cox Automotive. Cox runs the auction, which draws dealers from around the country to bid online or in person at the auction house.

Smoke tracks three-year old vehicles as an indicator of pricing for used cars, since that's when a lot of leases are turned in and that vintage is the most common pre-owned vehicle for sale at any given time. A three-year-old Nissan Altima costs about $100 more now than it did just last month. A three-year-old Toyota Camry costs $400 more than it did a year ago.

"The fact this happened almost exactly two weeks after Trump announced he was going to enact tariffs can't be ignored," Smoke said, referring to tariffs Donald Trump has proposed on new vehicles imported to the United States.

The Manheim Used Vehicle Value Index, increased 5.1 percent in July over the same month last year. July used car prices were also up 1.5 percent over the June prices, and the index is at its highest point since it first started tracking used sales in 1995.



"This kind of thing does not happen in July," Smoke said. "Fundamentally we have been seeing for 8 straight weeks now used prices gain in value ... a depreciating asset that should have lost 1 percent of value has instead gained 2 percent."

July is historically a slow month for used car sales. The market is driven by tax refund season, so its biggest months tend to be March and April.

While the tariffs on new car sales haven't been enacted yet, the mere threat appears to be driving up prices on new cars. Auto dealers at the Manheim auction Aug. 10 theorized that consumers who might be in the market for a car in the next six to nine months are buying now to hedge against possible rising prices.


The used car market already represents a far greater share of auto purchases than new cars. About 40 million used vehicles were sold in the U.S. in 2017. That is more than twice the 17.2 million new cars sold, which was itself nearly a record number.

Joe Rashti of the Jim Coleman Auto Group in Clarskville, Maryland, who's a regular at the Manheim auction, told CNBC that the last eight weeks have been some of the busiest auctions he's seen for this time of year.

"Definitely since the tariffs we have seen an influx of auction sales," he said while he was buying and selling vehicles Friday.


Rashti said he's heard other dealers have stepped up their own car buying, which generally means they are selling a lot more cars. Auto dealers generally want to move inventory as fast as possible, especially now that interest rates are rising and affecting their own financing feed. Smoke is surveying buyers to see if his hypothesis is accurate.

It is unclear how much longer this can go on, Smoke said. The market does see unusual spikes in volumes and pricing from time to time. For example, there was a surge in sales following the hurricanes Irma and Harvey in 2017, when buyers needed to replace damaged cars and dealers simultaneously suffered damage to their inventories. The only thing that is certain is that prices are going to change, especially with the tariffs.

Earlier this year, Trump imposed a 25 percent tariff on steel and a 10 percent tariff on aluminum coming from most countries. There are also tariffs on parts and vehicles coming from China, though few American vehicles are made there. The administration has proposed additional tariffs on vehicle and parts imports from other countries.

"We are going to have strange variability in used car prices, until this gets resolves on the tariff side," Smoke said.