Thomas Webb: Used Vehicle Values Begin To Normalize

Wholesale used vehicle values retreated as expected in January, with Hurricane Sandy’s impact on the market waning and auction supplies from commercial consignors rising. Continued strength in the retail market, however, kept the decline in wholesale prices modest, for now.

On a mix-, mileage-, and seasonally adjusted basis, wholesale prices fell 0.6 percent in January, with January’s Manheim Used Vehicle Value Index reading of 123.4 representing a 1.8 percent decline from a year ago.

New and used vehicle sales start 2013 strong. New vehicle sales sold at a seasonally adjusted annual rate of 15.2 million in January, which was similar to the pace achieved in the fourth quarter of 2012 and only slightly lower than the full year 2013 forecast of 15.3 million to 15.6 million. Meanwhile, used vehicle retail sales were very strong in January, with dealer deliveries rising sixteen percent, according to CNW.

It was feared that used vehicle sales in early 2013 would be hampered by the loss of the two-point reduction in the payroll tax and by a weak and delayed tax refund season. To date, reports from dealers suggest that neither of these factors was an issue, but that doesn’t mean they won’t impact sales in coming months. After all, January had the offsetting benefit of a spike in personal income in December (driven by special dividends and early bonus payments ahead of tax hikes) and a significant rise in the stock market. (There is often a strong statistical correlation between the Manheim Index and equity values, even though the theoretical causation is weak at best.)

Prices of off-rental units remain strong. If one uses off-rental units as the sample set, then the fear that rising auction supplies will destroy residual values is probably overblown. In January, prices for off-rental risk units sold at auction were up on both a year-over-year and sequential basis, despite significantly higher volumes. And, that volume increase was relative to very high levels last January.

New vehicle sales into rental in January rose less than four percent, which suggests there was some defleeting in January that normally would have occurred in December, absent the impact of Hurricane Sandy.

Composition of auction sales begins to shift. With commercial consignment volumes set to rise in 2013 -- after a steep decline over that past four years -- it was known that the mix of auction sales would shift back toward late-model, more expensive units. That shift was evident in January, with vehicles in the $25,000 to $30,000 price range showing the biggest percentage increase in volume, relative to last year. Vehicles in the $9,000 to $11,000 price range had the biggest drop in volume and, consequently, enjoyed strong pricing.