Tom Webb: Manheim Index Declines in March

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) fell in March, marking the third consecutive monthly decline and bringing the Manheim Used Vehicle Value Index to 120.4, a reading 4.6 percent lower than a year ago.

Although the availability of vehicles in the wholesale market has improved recently, so too has the level of retail demand. As such, we advise NAFA members to view the recent moderation in wholesale pricing as more of a natural realignment with respect to new vehicle prices than a supply-driven issue. Retail used unit sales increased nicely in the first quarter of 2013 as new vehicle sales begot used vehicle transactions and higher off-lease and off-rental volumes led to the subsequent retail sale of those units.

Older, higher-mileage units still dominate the lanes. Despite improved commercial consignment volumes, the average mileage for all units sold at auction continued to rise in the first quarter. And for dealer-consigned units, the uptrend accelerated.

Shifts in average mileage and volume sold by price tier showed no meaningful differences in trend during the first quarter. The price analysis by market class showed that, on a seasonally adjusted basis, midsize cars have weakened the most in recent months. Blame that on very competitive offerings in the new vehicle market.

Rental risk prices reflect richer mix. Meanwhile, a straight average of auction prices for rental risk units reached a new high in March, but this mostly reflected a shift in the composition of vehicles sold. For example, in the first quarter of this year, current and previous model year vehicles accounted for 61 percent of all of rental risk units sold, and older units accounted for the remaining 39 percent. In the first quarter of last year, current and previous model year vehicles accounted for only half of all rental risk units sold. The model mix of vehicles sold at auction has also moved upscale relative to last year. The average mileage on rental risk units sold during the quarter was about 5 percent lower than last year.

New vehicle sales pace levels off. New cars and light-duty trucks sold at a seasonally adjusted annual rate of 15.3 million in March. This was identical to the average pace over the past four months, and it was also consistent with the outlook for the full year. To date, the leveling-off in the new vehicle sales rate has not brought forth the traditional response – increased incentives. Nor do we believe it will.

Used vehicle sales continue to rise. Dealer sales of used vehicles rose 12 percent in March and for the first quarter as a whole, according to CNW. Although some of these sales were "forced" in the sense that trade-ins and end-of-term fleet units basically require a subsequent retail sale, the retail market was also clearly helped by the fundamentals of rising employment and free-flowing credit.

In March, tax refunds switched from being a negative to a positive for the used vehicle market. Tax refunds this January and February were $31 billion (or 14 percent) lower than a year ago, according to the IRS. In March, however, tax refunds were up $11 billion (19 percent) from last year’s level.

Tom Webb is chief economist for Manheim Consulting. Contact him at Thomas.webb@manheim.com, follow him via Twitter at www.twitter.com/TomWebb_Manheim and read his blog at www.manheimconsulting.typepad.com.

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