The trade war: liquid resale markets react first

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…

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.

Here is the full story, via Michael Rosenwald and here is his history podcast.


That post made no sense to me until I realised that it was about Manheim and not Mannheim.

So, something is filtering link of text from wikipedia talking about a company. The wiki link as plain text doesn't work either, it seems. The company is called Manheim Auctions, and at least provides some background why Manheim plays a role in the discussion.

(Might make some sense in terms of spam filters, but you just never know what is possible to link to or not.)

Always useful to see what Japanese cars are made in the U.S. when having these discussions, though of course Trump's tariffs have been enacted on steel and aluminum.

Both the Camry and Altima are manufactured in America, according to the above link. Yes, supply chains, Mexico, steel etc. - but that applies essentially to any car manufactured in America, not just the Camry and Altima.

A slightly different interpretation might be provided by the sort of boring economic reporting that marks calculated risk - 'Oil prices were down over the last week with WTI futures at $65.86 per barrel and Brent at $71.75 per barrel. A year ago, WTI was at $49, and Brent was at $51 - so oil prices are up 30% to 40% year-over-year.

Here is a graph from for nationwide gasoline prices. Nationally prices are at $2.83 per gallon. A year ago prices were at $2.32 per gallon - so gasoline prices are up 51 cents per gallon year-over-year.'

Though it is true that due to Trump's reinstatement of American sanctions against Iran, a significant amount of that rise in oil prices can be traced to Trump regardless.

Nonetheless, there is a much easier (well tested over the past 4 decades) explanation for why used cars with better gas mileage are now commanding a higher premium than they did a year ago, where the price of gas has risen over 15%.

to me the idea proposed here is; people are afraid cars might get more expensive in the future (cause tariffs/trade war) so those who thought about getting a car someday might start looking now instead, which increases demand (for ALL cars), which rises the price. It doesn't even matter if a car is manufactured outside of the US or not for this to work; though this doesn't need to oust gas prices and other factors to also play a role

'which increases demand (for ALL cars), which rises the price'

Quite possibly, but the examples are more than a bit cherry picked - '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.' Notice the price rise in one month compared to the price rise over a year. How does that look for pick-ups, vans, or SUVs? No information is provided.

The article proposes theories and certainly provides information, including the fact that much the same thing happened last year, though without any connection to trade policy - '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.'

That prices change is certain, regardless of tariffs. It is certainly a data point, and not a trivial one, but not one so easily assigned to a single cause.

The article does seem weak. Altima and Camry, two cars built in the US, having used prices rise because of a tariff seems like a leap. Why highlight these cars? The hottest segment of the market has been trucks and SUV's could there be an increase in the demand for small cars because of other factors?

Missing from the article is information about the supply of cars at auction. Are more or fewer cars coming off lease now?

You could just as easily argue that the increasing strength of the labor market, especially the bottom half that buys used cars, could be causing an increased demand for used cars.

According to an economist at GM. "Tax reform raised take-home pay, consumer confidence is high and household balance sheets are healthy," said the automaker’s chief economist, Elaine Buckberg. "All of this plus a strong job market makes consumers more willing to commit to major purchases like vehicles."

Read more:

I looked at the cheapest 2015 Camry and its trade-in value was about $11k, so that’s an increase of about 3.6%, which is roughly in line with current inflation. Show me something convincing.

+1. Prior to trade hysteria setting in, people were talking about inflation:
"Auto sales were strong in January, with average prices up 4% — an early sign of an inflationary economy.

The average price paid for a passenger vehicle in the U.S. hit a record $36,270 in January, according to Cox Automotive. Prices are rising fast in housing and commodities, including oil; the economy is expanding; and employment is up — all early harbingers of inflation."

Are you guys suggesting that old cars normally rise with inflation rather than fall with depreciation?

A car that is a year older, is a year older.

No, they're suggesting that a 3 year old car with the same mileage has gone up from 1 year to the next.

IE a 2015 Camry with 30K mileage is roughly 4% more expensive than a 2014 Camry with 30K mileage last August.

That would be a better analysis, especially comparing cars offered in the same zip code over time, but I don't see anyone about claiming they just that kind of study.

"I looked at the cheapest 2015 Camry"

And then they complain about quality of data.

I took the cheapest Camry because that would make the price increase the largest in percentage.

Not to belabor this, but Manheim does take their index seriously.

This shows how the cost of used cars can fluctuate independent of the underlying inflation rate.

As an aside, I knew a guy in the 90s who I guess was a prototypical data scientist. The dude actually did chart all the prices out of AutoTrader to find the trend of various used cars.

"The average price paid for a passenger vehicle in the U.S. hit a record $36,270 in January,"

Speaking of data and selection effects, this is an interesting number as well. We know you can get a perfectly good Honda Civic for around twenty grand. When people spend more they are often specifically signalling that they can spend more. At that point, how can we divide the "inflation" of mid-price cars from the "inflation" of both desire and the ability to pay?

If a used car is a substitute good for new cars, an increase in the price of new cars would be expected to increase demand for used cars. The increased demand for used cars might lead to price increases for them as well.

Will we end up lovingly maintaining our legacy autos for decades, like caricature Cubans?

The CPI shows all three, new cars,new trucks and used cars and trucks up less than 1% y/y through July. All showed similar price declines over the last few years even though only the new car index is adjusted for quality changes.

FWIW, I trust the CPI data.

And I think the Manheim data might be good, if it really represents a discontinuity versus long term trends. An early warning perhaps.

You could switch to an e-bike but they just got slapped with tariffs too...

I am a small wholesale car dealer in Phoenix, AZ and avid MR fan. I attend Manheim auctions weekly. They broker the auctioning of what are mostly trade ins and off-lease vehicles. I buy cars with 100k or more, probably a decade old, and have not seen much fluctuation in my market. Sure, prices go up seasonally in a university town when school starts, and definitely when tax refunds appear in the spring, but those prices are passed onto the end buyer within a week or so.

I fully appreciate the headline of the post here, and I am witness to some weird pricing (used VW diesels!), but it's the many consumers and/or the few dealers that gamble, project, buckle, adjust, fold, hold...and I don't see ANYONE involved doing any thinking that involves looking ahead more than a week or two.

Car sellers will use any means necessary to get buyers to either buy sooner or pay more. And don't forget this story is driven by Cox, which makes money on transactions regardless of the price.

Peter Drucker might have called it "parasitical overhead."

Lastly, I have heard the oldest car you can have to drive for Uber is a 2009 and that Mexico has an import tariff on cars less than a decade old. So every 2008 car is going to be worth measurably less than than both the 2007 and 2009 versions.

Comments for this post are closed