Wholesale Prices Decline Again in August
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Wholesale used vehicle prices declined for the fourth consecutive month in August, and the questions on the minds of NAFA members are 1) why is this happening and 2) will the trend continue?
First things first. The decline in used car prices (on a mix-, mileage-, and seasonally adjusted basis) was 0.7 percent in August, bringing the Manheim Used Vehicle Value Index reading to 121.8, down 0.4 percent from a year ago.
The three most important factors in this downward movement are:
- A reversal to trend levels after an extended period of exceptionally strong pricing
- Increased wholesale supplies
- In recent months, moderating retail demand
Wholesale used vehicle values: Back to trend levels. So, on to the second question: will the trend continue? August’s 121.8 Index reading put it right on the trend line for the entire series back to 1995. Fundamentals, and history, now suggest the Index will move into an extended period below trend. However, we do not expect that the coming deviation from trend will be as pronounced as the ten percent under-performance in early 2003 or seventeen percent shortfall that occurred in December 2008. In both of those instances, a weakening economy and tight credit amplified the normal cyclical swing in wholesale pricing. Today, employment growth is improving and retail credit conditions remain favorable.
New vehicle sales: August was a scorcher. New cars and light duty trucks sold at a seasonally adjusted annual rate of 17.4 million in August – the fastest pace since 2006. These strong sales have not been the result of fleet sales. Total new vehicle sales into fleet rose by 13.5 percent in August, but year-to-date fleet sales are up only 3.8 percent versus a 5.5 percent increase in retail deliveries.
Used vehicle sales pace weakens, but profits are still good. Retail used unit sales by dealers declined in August for the third consecutive month – and last month’s falloff was more than nine percent, according to CNW. Nevertheless, we continue to hear positive comments from dealers that turn rates are good and net margins are strong. Thus, although slightly more selective, dealers are still aggressively seeking appropriate inventory. But, with new vehicle sales so strong, keep in mind that for franchised dealers a lot of great inventory is literally being driven to their door every day in the form of trade-ins and lease turn-ins.
Rental risk prices ease from record highs. Auction prices for rental risk units (unadjusted for mix and mileage) declined for the fourth consecutive month in August. The average price is now off approximately $1,200 from the all-time high reach in April, but down less than $300 from a year ago. The index of rental risk pricing that adjusts for changes in mix and mileage was down $1,610 from its March peak and down $470 from a year ago.
Volumes sold at auction remained low in August, and average mileage slipped back below 40,000. With new vehicle sales into rental up 10 percent in August, some increased flow back into the wholesale market is inevitable, whether it is via the traditional auction process or some other channel.
Price movements in August reflect shifting wholesale supplies. Our analysis of average mileage by price tiers showed that the strongest pricing in August remained in the $13,000 to $15,000 range, whereas the weakest pricing was in the $9,000 to $10,000 range. These trends were strongly consistent with the underlying shifts in auction availability.
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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