Fleet Prices Moderate Amid Increased Volume As Broader Market Values Decline Marginally

As expected, prices for commercial vehicles moderated somewhat in October. Fleet managers increased the volume of midsize cars returning to the market last month and achieved fairly good prices, but not value commensurate with the lower mileage that these vehicles had at the time of sale. Pricing for end-of-service pickups and vans, however, continued to be very strong.

Manheim Index Declines Marginally in October - On a mix, mileage, and seasonally adjusted basis, wholesale used vehicle prices moved down slightly in October. The Manheim Used Vehicle Value Index reading of 122.8 in October represented a 0.1percent decline from both September 2011 and October 2010.

Wholesale used vehicle values have remained at high levels due to restricted wholesale supplies and strengthening retail demand. The new vehicle market continues to experience low inventory levels, higher transaction prices, and a quicker sales pace.

New vehicle sales pace rises; incentives fall. New vehicles sold at a seasonally adjusted annual rate of 13.2 million in October, the second fastest pace of the year. And the gain was achieved without the much feared incentive war. In fact, incentive spending was down as overall inventory levels remained low and carryover stock was a non-issue. The high portion of October sales accounted for by 2012 models and less discounting overall meant that average new vehicle transaction prices continued to rise nicely.

Used vehicle retail sales also strong. As often noted, new and used vehicle sales are more complements than substitutes. As such, it is not surprising that retail sales of used vehicles typically also strengthen in October. In fact, according to CNW Market Research, used sales had their strongest October in four years, with a year-over-year increase of more than twelve percent. Earlier, third quarter earnings releases from the seven publicly-traded dealership groups showed an increase in same-store used vehicle retail unit sales for the ninth consecutive quarter. Although they also reported a narrowing in gross margins, this was most likely the result of accepting low grosses on units that otherwise would have been wholesaled as opposed to any across-the-board reduction in gross profit per deal.

Off-rental units continue to command strong prices at auction. Rental risk volumes in October moved down sequentially from September, but were well above year-ago levels. As anticipated, pricing remained exceptionally strong, moving back above $14,000 per unit, and average mileage remained steady at about 37,500 miles. The pricing on these units was no doubt helped by the low level of carryover units in new vehicle inventory.