Jim Cramer says falling used car prices suggests inflation could be easing

CNBC’s Jim Cramer on Thursday said that while headwinds facing the used car market make it un-investable, its declining performance is also an indicator that inflation might be cooling.

“When everybody was freaking out about the 8.5% consumer price index number – that is a hot number – you might’ve noticed that used car and truck prices were down 3.8% from the previous month,” he said.

“While that’s bad news for the used car industry, it could be a fabulous sign for the broader economy because it means we’re finally making some progress in getting inflation under control,” he added.

The “Mad Money” host’s comments come after CarMax reported better-than-expected revenue but missed on earnings in its latest quarter. JPMorgan downgraded the stock due to concerns about how vehicle affordability could affect CarMax’s performance.

“We’re finally seeing what’s known as demand destruction. People just don’t want to buy as many used vehicles if they’re going to have to pay that much. … In the end, used car prices can’t keep soaring like this forever,” Cramer said of CarMax’s quarterly results.

He added that while now is not an optimal time to own a used car stock, he does have one option to offer investors still wanting to try their luck.

“If you insist on owning a used car play, I say go with Lithia. …. I think it’s the wrong moment for this one, too, but if you disagree with me, Lithia’s the way to go,” he said.

He also said he has some confidence in the performance of used and new car dealerships including AutoNation, Sonic Automotive, Group 1 Automotive and Asbury Automotive. 

“They benefit from the return of new car supply, as the automakers finally get their supply chains in order. More importantly, these dealerships are actually profitable and their stocks are fairly reasonable. Honestly, though, they’re so cheap that you’ve got to worry that the estimates need to come down,” he said.

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