Wholesale Prices Inch Up, Reversing Trend
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Despite continuing economic uncertainty, wholesale automotive markets continued to enjoy growing volumes and stable pricing in the second quarter. Retail markets had higher volumes on narrower margins. F&I income and greater operating efficiencies kept profits at record highs.
Wholesale prices rise slightly in June. Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) inched up in June after declining in each of the previous four months. This brought the Manheim Used Vehicle Value Index to a reading of 123.9 in June, which represented a decline of 0.1 percent from a year ago. In the first part of July, wholesale prices eased back down.
After peaking in 2011, wholesale prices remained strong and have moved in a narrow range ever since, despite ever-growing wholesale supplies. The pricing strength is a testament to solid retail markets, greater operating efficiencies, and good remarketing practices. Current wholesale pricing is now in line with historic norms and market fundamentals; but a further acceleration in wholesale supplies, plus strong seasonal headwinds, will likely put downward pressure on pricing.
Market segment and price tier trends. Pickups and vans were the only two major segments with higher prices year-over-year. Within the van segment, full-size commercial passenger units and cargo vans were especially strong.
Within the pricing tiers, as has been the case all year, there was weakness in the $9,000 to $11,000 range and strength in everything above $15,000. The volume of vehicles offered in the $9,000 to $11,000 range was up considerably from a year ago.
A straight average of auction pricing was up year-over-year for both commercially consigned and dealer-consigned units. The average mileage for dealer-consigned has stayed closed to its year-ago level. The average mileage on commercially consigned units has declined.
Used vehicle retail market remains solid. The seven publicly traded dealership groups posted their 24th consecutive quarter of same-store used unit retail growth. Margins continued to narrow (and more than most analysts expected); but most dealer group CEOs and CFOs seemed unperturbed and noted the lower margins were willingly accepted for the higher volume, as well as for the additional F&I and reconditioning income.
According to NADA, total used vehicle sales were up 1.3 percent in the first half of 2015, with franchised dealers up 2.6 percent, independents up 1.9 percent, and private party transactions down 1.0 percent. CPO sales were up a strong 12.5 percent in the first half of the year.
New vehicle sales strong, transaction prices up. New cars and light-duty trucks sold at a seasonally adjusted annual rate (SAAR) of 17.1 million in June, down from a 17.7 million pace in May (a month that was boosted by several calendar quirks). Simply eliminating the questionable selling day adjustment would put the sales pace for both months on par with each other. Early reads on July sales suggest another SAAR of around 17 million.
The SAAR on a three-month moving average basis was 17.1 million in June, the strongest pace in nearly a decade. Both incentive spending and inventory levels remain restrained. Indeed, in June, there were more cases of sales’ being lost due to restricted supplies than sales’ being artificially boosted by manufacturer channel stuffing.
The average new vehicle transaction price was $33,340 in June, according to Kelley Blue Book, up 2.5 percent from a year ago. The rise was the result model mix shifts, higher trim levels, and straight price increases. The government’s new vehicle component of the Consumer Price Index, which controls for mix and adjusts for quality increases, has risen 0.8 percent over the past year and 2.4 percent over the past three years. Given that the Manheim Index has eased over this time, the ratio between the two series has now returned to its normal range.
Tom Webb is Chief Economist for Cox Automotive. 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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