‘Kind of crazy’: how the booming US used car market is driving inflation

Supply constraints and soaring demand make vehicle prices a key number to watch for the Fed

James Politi in Washington and Colby Smith in New York

     © FT montage | Popular vehicles like the Ford F-150 truck are selling for much higher prices

Last month it took Carey Cherner, a 36-year-old used car dealer in Kensington, Maryland, less than 12 hours to sell a 2001 Ford F-150 pick-up truck with 184,000 miles on the clock. 

It went for $7,500 — 50 per cent higher than usual.

Cherner’s experience was not a one-off in the US used car market, where prices are rising rapidly. 

The industry is at the heart of the country’s growing inflationary pressures — and has therefore become a subject of great interest to policymakers in Washington.

“There’s more people buying cars than there are cars in the market, which makes it go kind of crazy,” Cherner said.

Unusually, officials are watching used car prices closely as an indicator for the future path of inflation. 

If the price rises become entrenched and spread into other parts of the economy, America could face a prolonged period of overheating for the first time in decades, posing a big challenge for the US Federal Reserve and Joe Biden’s economic policymakers. 

The cost of used cars and trucks jumped 10 per cent month-on-month in April, and was up 21 per cent compared with a year earlier, making it one of the main drivers of the 4.2 per cent year-on-year surge in the US Bureau of Labor Statistics’ consumer price index. 

Core inflation — excluding volatile food and energy prices — hit 3 per cent.

Ernie Garcia, founder of online used car sales platform Carvana, said: “Prices are unquestionably higher than they’ve ever been and have unquestionably moved more quickly than I believe they’ve ever moved.”

Policymakers insist the pressures will gradually abate, reinforcing their view that the broader inflationary trend will be mainly transitory. 

In a speech on Tuesday, Lael Brainard, a Fed governor, said that although the used vehicle cost pressures “may persist over the summer months, I expect them to fade and likely reverse somewhat in subsequent quarters”.

But while many economists agree the inflationary pressures are likely to be temporary, they also acknowledge that uncertainty over the economic outlook is huge; as the pandemic recedes across America, consumers are flush with savings and government payments while supply chains are strained by bottlenecks.

“We are seeing a level of stimulus that is essentially unprecedented in the last 50 years, plus other forms of support for spending. 

These are really uncharted waters and we have to be humble,” said Nathan Sheets, chief economist at PGIM Fixed Income and a former under-secretary at the US Treasury. 

“How sure am I that I am right that inflation is going to dissipate? 

Probably 80 per cent, but that is still a pretty fat tail.”

Lael Brainard, a governor of the US Federal Reserve, says pressures in the used car market should abate later this year © Taylor Glascock/Bloomberg

The surge in prices is driven by the slowdown in new car production because of lockdowns and semiconductor shortages.

In addition — unusually for a recession — the number of customers who defaulted on vehicle finance and had their car repossessed has declined, cutting off another source of supply for dealers such as Cherner. 

Demand, meanwhile, has boomed. 

Americans’ preferences have shifted away from public transport because of the pandemic. 

Stimulus measures have helped them to spend. 

And rental car companies that sold off their fleets as travel collapsed last year are now scrambling to rebuild them with used vehicles.

“It’s incredibly tight right now: you have more demand . . . that is supported by fiscal stimulus, so it’s just like a perfect storm. 

And we’re seeing that clearly in prices,” said Laura Rosner, a senior economist at MacroPolicy Perspectives. 

But Jonathan Smoke of Cox Automotive, a consultancy for car dealers, noted that “several leading indicators of what’s happening at our auctions” suggest “the price appreciation streak is likely going to end”.

The cost of US used cars and trucks jumped 10 per cent month-on-month in April © Justin Sullivan/Getty

That leaves economists and US officials considering how long it will take for price growth to return to levels closer to the Fed’s average 2 per cent target, which allows for some overshooting.

Goldman Sachs predicts core inflation will peak at 3.6 per cent year-on-year in June, drifting down slightly to 3.5 per cent by the end of the year and averaging 2.7 per cent in 2022.

Officials at the Fed are not only watching headline and core inflation but also other measures of price growth. 

The core personal consumption expenditures index — traditionally the Fed’s preferred indicator — rose 3.1 per cent in April, although the Dallas Fed’s trimmed mean PCE indicator increased by a more modest 1.8 per cent.

The US central bank has also developed a quarterly index of common inflation expectations to assess whether they are moving away from its goals; its next reading is due in July. 

Despite those efforts, the uncertainty has rattled some economists and investors.

“Overall our base case around inflation hasn’t changed, but our conviction in that view has to be lower,” said Lynda Schweitzer, co-head of the global fixed income team at Loomis Sayles. 

“We have to be considering the risks of something more sustained.”

And in Maryland, Cherner is optimistic in the outlook.

“I don’t see a steep drop-off [in prices] until there’s way more supply than there is demand,” he said. 

“They still have to build the new cars and get the chips in them and get them out. 

I just think it’s going to last.”

‘There’s more people buying cars than there are cars in the market, which makes it go kind of crazy,’ says Carey Cherner of Cherner Brothers Auto Sales in Kensington, Maryland © Carey Cherner

Will Corporate Greed Prolong the Pandemic?

The shortfall in global COVID-19 vaccine production could be closed if manufacturers around the world were granted access to the necessary technology and knowledge. But first, the US and other key governments must recognize the drug companies' opposition to this solution for the deadly rent-seeking that it is.

Joseph E. Stiglitz, Lori Wallach

NEW YORK – The only way to end the COVID-19 pandemic is to immunize enough people worldwide. 

The slogan “no one is safe until we are all safe” captures the epidemiological reality we face. 

Outbreaks anywhere could spawn a SARS-CoV-2 variant that is resistant to vaccines, forcing us all back into some form of lockdown. 

Given the emergence of worrisome new mutations in India, Brazil, South Africa, the United Kingdom, and elsewhere, this is no mere theoretical threat.

The US will no longer stand in the way of an international waiver that would allow the production of generic COVID-19 vaccines, but the fight isn't over. 

And the longer the pharmaceutical industry resists sharing knowledge and technology, the greater the risk posed by the emergence of new vaccine-resistant variants.

Worse, vaccine production is currently nowhere close to delivering the 10-15 billion doses needed to stop the spread of the virus. 

By the end of April, only 1.2 billion doses had been produced worldwide. 

At this rate, hundreds of millions of people in developing countries will remain unimmunized at least until 2023.

It is thus big news that US President Joe Biden’s administration has announced it will join the 100 other countries seeking a COVID-19 emergency waiver of the World Trade Organization intellectual-property (IP) rules that have been enabling vaccine monopolization. 

Timely negotiations of a WTO agreement temporarily removing these barriers would create the legal certainty governments and manufacturers around the world need to scale up production of vaccines, treatments, and diagnostics.

Last fall, former President Donald Trump recruited a handful of rich-country allies to block any such waiver negotiations. 

But pressure on the Biden administration to reverse this self-defeating blockade has been growing, garnering the support of 200 Nobel laureates and former heads of state and government (including many prominent neoliberal figures), 110 members of the US House of Representatives, ten US Senators, 400 US civil-society groups, 400 European parliamentarians, and many others.


The scarcity of COVID-19 vaccines across the developing world is largely the result of efforts by vaccine manufacturers to maintain their monopoly control and profits. 

Pfizer and Moderna, the makers of the extremely effective mRNA vaccines, have refused or failed to respond to numerous requests by qualified pharmaceutical manufacturers seeking to produce their vaccines. 

And not one vaccine originator has shared its technologies with poor countries through the World Health Organization’s voluntary COVID-19 Technology Access Pool.

Recent company pledges to give vaccine doses to the COVID-19 Vaccines Global Access (COVAX) facility, which will direct them to the most at-risk populations in poorer countries, are no substitute. 

These promises may assuage drug companies’ guilt, but won’t add meaningfully to the global supply.

As for-profit entities, pharmaceutical corporations are focused primarily on earnings, not global health. 

Their goal is simple: to maintain as much market power as they can for as long as possible in order to maximize profits. 

Under these circumstances, it is incumbent on governments to intervene more directly in solving the vaccine supply problem.


In recent weeks, legions of pharmaceutical lobbyists have swarmed Washington to pressure political leaders to block the WTO COVID-19 waiver. 

If only the industry was as committed to producing more vaccine doses as it is to producing specious arguments, the supply problem might already have been solved.

Instead, drug companies have been relying on a number of contradictory claims. 

They insist that a waiver is not needed, because the existing WTO framework is flexible enough to allow for access to technology. 

They also argue that a waiver would be ineffective, because manufacturers in developing countries lack the wherewithal to produce the vaccine.

And yet, drug companies also imply that a WTO waiver would be too effective. 

What else are we to make of their warnings that it would undermine research incentives, reduce Western companies’ profits, and – when all other claims fail – that it would help China and Russia beat the West geopolitically?

Obviously, a waiver would make a real difference. 

That is why drug companies are opposing it so vehemently. 

Moreover, the “market” confirms this thinking, as evidenced by the sharp decline in the major vaccine-makers’ share prices just after the Biden administration’s announcement that it will engage in waiver negotiations. 

With a waiver, more vaccines will come online, prices will fall, and so too will profits.

Still, the industry claims that a waiver would set a terrible precedent, so it is worth considering each of its claims in turn.


After years of passionate campaigning and millions of deaths in the HIV/AIDS epidemic, WTO countries agreed on the need for compulsory IP licensing (when governments allow domestic firms to produce a patented pharmaceutical product without the patent owner’s consent) to ensure access to medicines. 

But drug companies never gave up on doing everything possible to undermine this principle. 

It is partly because of the pharmaceutical industry’s tight-fistedness that we need a waiver in the first place. 

Had the prevailing pharmaceutical IP regime been more accommodating, the production of vaccines and therapeutics already would have been ramped up.1

The argument that developing countries lack the skills to manufacture COVID vaccines based on new technologies is bogus. 

When US and European vaccine makers have agreed to partnerships with foreign producers, like the Serum Institute of India (the world’s largest vaccine producer) and Aspen Pharmacare in South Africa, these organizations have had no notable manufacturing problems. 

There are many more firms and organizations around the world with the same potential to help boost the vaccine supply; they just need access to the technology and know-how.

For its part, the Coalition for Epidemic Preparedness Innovations has identified some 250 companies that could manufacture vaccines. 

As South Africa’s delegate at the WTO recently noted:

“Developing countries have advanced scientific and technical capacities… the shortage of production and supply [of vaccines] is caused by the rights holders themselves who enter into restrictive agreements that serve their own narrow monopolistic purposes putting profits before life.”

While it may have been difficult and expensive to develop the mRNA vaccine technology, that doesn’t mean production of the actual shots is out of reach for other companies around the world. 

Moderna’s own former director of chemistry, Suhaib Siddiqi, has argued that with enough sharing of technology and know-how, many modern factories should be able to start manufacturing mRNA vaccines within three or four months.

Drug companies’ fallback position is to claim that a waiver is not needed in light of existing WTO “flexibilities.” 

They point out that firms in developing countries have not sought compulsory licenses, as if to suggest that they are merely grandstanding. 

But this supposed lack of interest reflects the fact that Western pharmaceutical companies have done everything they can to create legal thickets of patents, copyrights, and proprietary industrial design and trade secret “exclusivities” that existing flexibilities may never cover. 

Because mRNA vaccines have more than 100 components worldwide, many with some form of IP protection, coordinating compulsory licenses between countries for this supply chain is almost impossible.

Moreover, under WTO rules, compulsory licensing for export is even more complex, even though this trade is absolutely essential for increasing the global vaccine supply. 

The Canadian drug maker Biolyse, for example, is not permitted to produce and export generic versions of the Johnson & Johnson vaccine to developing countries after J&J rejected its request for a voluntary license.

Another factor in the vaccine supply shortage is fear, both at the corporate and the national level. 

Many countries worry that the United States and the European Union would cut off aid or impose sanctions if they issued compulsory licenses after decades of threats to do so. 

With a WTO waiver, however, these governments and companies would be insulated from corporate lawsuits, injunctions, and other challenges.


This brings us to the third argument that the big pharmaceutical companies make: that an IP waiver would reduce profits and discourage future research and development. 

Like the previous two claims, this one is patently false. 

A WTO waiver would not abolish national legal requirements that IP holders be paid royalties or other forms of compensation. 

But by removing the monopolists’ option of simply blocking more production, a waiver would increase incentives for pharmaceutical companies to enter into voluntary arrangements.

Hence, even with a WTO waiver, the vaccine makers stand to make heaps of money. 

COVID-19 vaccine revenue for Pfizer and Moderna just in 2021 is projected to reach $15 billion and $18.4 billion, respectively, even though governments financed much of the basic research and provided substantial upfront funds to bring the vaccines to market.

To be clear: The problem for the pharmaceutical industry is not that drug manufacturers will be deprived of high returns on their investments; it is that they will miss out on monopoly profits, including those from future annual booster shots that doubtless will be sold at high prices in rich countries.

Finally, when all of its other claims fall through, the industry’s last resort is to argue that a waiver would help China and Russia gain access to a US technology. 

But this is a canard, because the vaccines are not a US creation in the first place. 

Cross-country collaborative research into mRNA and its medical applications has been underway for decades. 

The Hungarian scientist Katalin Karikó made the initial breakthrough in 1978, and the work has been ongoing ever since in Turkey, Thailand, South Africa, India, Brazil, Argentina, Malaysia, Bangladesh, and other countries, including the US National Institutes of Health.

Moreover, the genie is already out of the bottle. 

The mRNA technology in the Pfizer-produced vaccine is owned by BioNTech (a German company founded by a Turkish immigrant and his wife), which has already granted the Chinese producer Fosun Pharma a license to manufacture its vaccine. 

While there are genuine examples of Chinese firms stealing valuable IP, this isn’t one of them. 

Besides, China is well on its way to developing and producing its own mRNA vaccines. 

One is in Phase III clinical trials; another can be stored at refrigerator temperature, eliminating the need for cold chain management.


For those focused on geopolitical issues, the bigger source of concern should be America’s failure to date to engage in constructive COVID-19 diplomacy. 

The US has been blocking exports of vaccines that it is not even using. 

Only when a second wave of infections started devastating India did it see fit to release its unused AstraZeneca doses. 

Meanwhile, Russia and China have not only made their vaccines available; they have engaged in significant technology and knowledge transfer, forging partnerships around the world, and helping to speed up the global vaccination effort.2

With daily infections continuing to reach new highs in some parts of the world, the chance of dangerous new variants emerging poses a growing risk to us all. 

The world will remember which countries helped, and which countries threw up hurdles, during this critical moment.

The COVID-19 vaccines have been developed by scientists from all over the world, thanks to basic science supported by numerous governments. 

It is only proper that the people of the world should reap the benefits. 

This is a matter of morality and self-interest. 

We must not let drug companies put profits ahead of lives.

Joseph E. Stiglitz, a Nobel laureate in economics and University Professor at Columbia University, is a former chief economist of the World Bank (1997-2000) and chair of the US President’s Council of Economic Advisers, was lead author of the 1995 IPCC Climate Assessment, and co-chaired the international High-Level Commission on Carbon Prices.

Lori Wallach is Director of Public Citizen’s Global Trade Watch.

A bigger role for venture capital

Why bankers are scarce in Silicon Valley

To understand what was a risky venture in 19th-century America, visit the Whaling Museum in Nantucket. 

The industry thrived on this Massachusetts island, now transformed from an outpost for coarse sailors into a swanky beach spot. 

Two centuries ago, whales were valuable because of the lucrative oil in their head-cases. 

Captains amassed fleets of sloops and dozens of men armed with harpoons to hunt them. 

For lucky crews that found their “white whales” the rewards were enormous, but so were the risks of losing ships and souls in the hunt. 

In “Moby Dick” Herman Melville admonishes the reader: “for God’s sake, be economical with your lamps and candles! 

Not a gallon you burn, but at least one drop of man’s blood was spilled for it.”

The risk of losing all was too great for bankers, who refused to lend money to whalers. 

So a new breed, the whaling agent, stepped in to provide captains with capital in return for a share of profits. 

Although stakes in many voyages might be lost they spread the capital so that one successful voyage made up for it. 

This model was an oddity in the 1800s, but the trade-off will sound familiar to venture capitalists today. 

In their business low-probability, high-pay-off outcomes are the “allure of the long tail”. 

Venture capitalists fund startups by investing in a broad portfolio in hopes of finding the next Google or Amazon.

The difference between whaling agents of 19th century New England and today’s venture capitalists is their importance. 

Even at its peak in the 1850s, whaling contributed only 1.7% of American industrial output. 

Bankers financed the behemoths such as railroads, manufacturers and farmers. 

The first recognisable venture-capital fund, ard in Boston, was created in 1946, but its successors loom much larger. 

Just shy of half all listed American companies were once venture-backed. 

The ascent of venture capital has come, in some ways, at the expense of other financiers. 

Bankers are conspicuous by their absence in Silicon Valley.

Why has venture capital boomed? 

One theory, posited in “Capitalism without Capital” by Jonathan Haskel, at Imperial College London and Stian Westlake, a researcher at Nesta, a think-tank, begins with the shift in how businesses invest. 

Firms once mostly invested in physical stuff (“tangible capital”) like railroads, equipment, vehicles or machinery to make things.

Now they increasingly invest in research, branding and software (“intangible capital”) to produce intellectual property. 

According to data from Lee Branstetter of the Peterson Institute for International Economics and Dan Sichel of Wellesley College, 13-14% of the output of businesses in 1980 was invested in tangible assets and just 9% in intangible assets. 

By the mid-2010s these shares had switched: around 14% was spent on intangibles, and 9% on tangibles.

The rise of intangible capital may explain several capital-market trends, including the fact that private firms are tending to stay private for longer and the popularity of mergers. 

Software companies find it easier to protect intellectual property in private markets. 

Rigid accounting rules do not cope well with intangible capital, for instance by mostly booking spending on research as an expense, discouraging it.

The shift has other broad implications. 

Lenders like collateral: whenever financiers make loans they worry about being repaid, but they can take valuable property in case of default. 

Most consumer lending is secured against houses or cars.

But businesses that create intangible assets do not have such collateral. 

This can make it harder to secure debt-financing, which is often not available unsecured for new businesses at a reasonable rate. 

Stephen Cecchetti, an economist at Brandeis University, calls this the “tyranny of collateral”.

American software firms have debt worth just 10% of equity. 

By contrast restaurants often have debt worth 95% of their assets. 

Tech firms frequently rely on seed funding and venture capital.

This cannot be explained solely by a lack of demand: the tech firms might like to borrow if they could. 

“The companies that we are talking to today believe their valuations will be a lot higher next year,” says Scott Bluestein, boss of Hercules Capital, which lends to software and biotech firms. 

“If they can use structured debt to get there without having to raise equity, they can limit a significant amount of dilution, which can be very valuable for management and early investors.”

Some niche lenders manage. 

“We do lend secured,” says Greg Becker, boss of Silicon Valley Bank in Santa Clara. 

“We are often secured by intellectual property which, for a software company, is their ability to generate revenue from code.” 

This comes with other risks. 

“We will take losses in situations where software once had value, but the industry was disrupted in a way that it no longer does. 

That is just harder for traditional banks to get their arms around versus hard assets.” 

Most banks are less flexible.

The Logic of US-China Competition

The success of US President Joe Biden’s China policy will depend on whether the two powers can cooperate in producing global public goods, while competing in other areas. The US-China relationship is a “cooperative rivalry,” in which the terms of competition will require equal attention to both sides of the oxymoron. That will not be easy.

Joseph S. Nye, Jr.

CAMBRIDGE – In his recent address to the US Congress, President Joe Biden warned that China is deadly serious about trying to become the world’s most significant power. 

But Biden also declared that autocrats will not win the future; America will. 

If mishandled, the US-China great-power competition could be dangerous. 

But if the United States plays it right, the rivalry with China could be healthy.

The success of US President Joe Biden’s China policy will depend on whether the two powers can cooperate in producing global public goods, while competing in other areas. 

The US-China relationship is a “cooperative rivalry,” in which the terms of competition will require equal attention to both sides of the oxymoron. That will not be easy.

The success of Biden’s China policy depends partly on China, but also on how the US changes. 

Maintaining America’s technological lead will be crucial, and will require investing in human capital as well as in research and development. 

Biden has proposed both. At the same time, the US must cope with new transnational threats such as climate change and a pandemic that has killed more Americans than all the country’s wars, combined, since 1945. 

Tackling these challenges will require cooperation with China and others.

Biden thus faces a daunting agenda, and is treating the competition with China as a “Sputnik Moment.” 

Although he referred in his address to President Franklin D. Roosevelt and the Great Depression, and avoided misleading cold-war rhetoric, an apt comparison is with the 1950s, when President Dwight Eisenhower used the shock of the Soviet Union’s satellite launch to galvanize US investment in education, infrastructure, and new technologies. 

Can America do the same now?

China is growing in strength but also has significant weaknesses, while the US has important long-term power advantages. 

Start with geography. Whereas the US is surrounded by oceans and friendly neighbors, China has territorial disputes with India, Japan, and Vietnam. 

Likewise US advantage. America is now a net energy exporter, while China depends on oil imports transported across the Indian Ocean – where the US maintains a significant naval presence.

Furthermore, the US wields financial power as a result of its global institutions and the dollar’s international hegemony. 

While China aspires to a larger global financial role, a credible reserve currency depends on currency convertibility, deep capital markets, honest government, and the rule of law – all of which China lacks. 

The US has demographic advantages, too: its workforce is increasing, while China’s has begun to decline.

America has also been at the forefront of key technologies, and US research universities dominate global higher-education rankings. 

At the same time, China is investing heavily in research and development, now competes well in some fields, and aims to be the global leader in artificial intelligence by 2030. 

Given the importance of machine learning as a general-purpose technology, China’s advances in AI are particularly significant.

Moreover, Chinese technological progress is no longer based solely on imitation. 

While the Trump administration correctly punished China’s theft and coercive transfer of intellectual property, and unfair trade practices, a successful US response to China’s technological challenge will depend more on improvements at home than on external sanctions.

As China, India, and other emerging economies continue to grow, America’s share of the world economy will remain below its level of about 30% at the beginning of this century. 

In addition, the rise of other powers will make it more difficult to organize collective action to promote global public goods. 

Nonetheless, no country – China included – is about to displace the US in terms of overall power resources in the next few decades.

Rapid Asian economic growth has encouraged a horizontal power shift to the region, but Asia has its own internal balance of power. 

China’s strength is balanced by Japan, India, and Australia, among others, with the US playing a crucial role. 

If America maintains its alliances, China will have slim prospects of driving it from the Western Pacific, much less dominating the world.

But competing with China is only half the problem facing Biden. 

As the American technology expert Richard Danzig argues, “Twenty-first-century technologies are global not just in their distribution, but also in their consequences. 

Pathogens, AI systems, computer viruses, and radiation that others may accidentally release could become as much our problem as theirs.” 

For that reason, Danzig argues, “Agreed reporting systems, shared controls, common contingency plans, norms, and treaties must be pursued as means of moderating our numerous mutual risks.”

In some areas, unilateral American leadership can provide a large part of the answer to the problem of providing public goods. 

For example, the US Navy is vital to policing the law of the sea and defending freedom of navigation in the South China Sea. 

But when it comes to new transnational issues like climate change and pandemics, success will require the cooperation of others. 

While American leadership will be important, the US cannot solve these problems by acting alone, because greenhouse gases and viruses do not respect borders or respond to military force.

In the domain of ecological interdependence, power becomes a positive-sum game. America thus cannot simply think in terms of its power over others, but must also consider its power with others. 

On many transnational issues, empowering others can help America to achieve its own goals; the US benefits if China improves its energy efficiency and emits less carbon dioxide. 

America thus has to cooperate with China while also competing with it.

Some worry that China will link cooperation on tackling climate change to US concessions in traditional areas of competition, but this ignores how much China has to lose if Himalayan glaciers melt or Shanghai is flooded. 

It was notable that Chinese President Xi Jinping participated in Biden’s recent global climate conference despite bilateral tensions over US human-rights criticisms of China.

A key question when gauging the success of Biden’s China policy will be whether the two powers can cooperate in producing global public goods, while competing strongly in other areas. 

The US-China relationship is a “cooperative rivalry,” in which the terms of competition will require equal attention to both sides of the oxymoron. 

That will not be easy.

Joseph S. Nye, Jr. is a professor at Harvard University and author of Do Morals Matter? Presidents and Foreign Policy from FDR to Trump.