Wholesale Prices Rise Again In September For Fourth Straight Month
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Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased for the fourth consecutive month in September. This brought the Manheim Used Vehicle Value Index to a reading of 124.8, representing an increase of 2.8 percent from a year ago. To be sure, September’s pricing was down before the seasonal adjustment, and to be sure, seasonal adjustment is tricky this time of year, but the pattern of wholesale pricing over the last four months – not to mention the last four years – has been one of strength and stability.
Wholesale pricing trends have defied the expectations analysts held at the beginning of the year, but used vehicle values are not defying fundamentals. Yes, wholesale volumes are up significantly, but it’s from a low base. Yes, new vehicle incentives are up, but not to dangerous levels. And, yes, used retail margins are down, but net profits are rising.
Market class and consignor segments. Compact cars remain the only major market segment with lower pricing versus a year ago. Pickups, SUVs, CUVs, vans, and midsize cars are all up over the past year. Luxury cars are also up; but the gain is small, and the comparison is against weak year-ago pricing.
A straight average of all auction sales naturally showed a seasonal decline in pricing from August to September, but values were well up from year-ago levels for both commercial and dealer-consigned units. The average mileage on dealer-consigned units continued to track below its year-ago level.
Rental risk pricing continues to "recover." A straight average of auction prices for rental risk units bumped up in both August and September. This brought the average price very close to where it has been for the past three years and is confirmation that the "weak" pricing in May, June, and July was mostly a reflection of the older, poorer-condition vehicles being sold.
After being up significantly in the first eight months of the year, auction volumes for rental risk units eased in September. The average mileage on units sold slipped back below 45,000 miles, but was still up eight percent from a year ago.
September’s new vehicle sales report: Exceptionally good. In what now seems like a regular monthly occurrence, September’s new vehicle sales pace exceeded expectations. In fact, at 18.2 million, the SAAR was the highest in more than decade – and that earlier July 2005 pace of 20.6 million was the result of employee-discount pricing programs, which resulted in a subsequent payback.
When new vehicle sales exceed expectations, there is always concern that dealers might have over-allowed on the higher number of trade-ins they received. So far this year, they have not. If they correctly valued trade-ins in September, their used vehicle operations should be set up well for October given that new vehicle inventory levels are down due to the higher sales pace last month.
September’s employment report: Exceptionally bad. Non-farm payrolls grew by a disappointing 142,000 in September. This, plus downward revisions to July and August numbers, pushed the three-month moving average to 167,000 – well below what is considered the self-sustaining 200,000 level. Other employment indicators such as the labor force participation rate (down) and earnings (flat) were also disappointing. And, with a loss in September, the number of people employed full time fell below its pre-recession peak reached way back in November 2007.
With respect to the retail used vehicle market, and more specifically credit availability, one can take comfort in the low of initial jobless claims and the high number of job openings per job seeker. This might not spell robust economic growth, but it does give job holders the confidence to borrow and lenders the confidence to lend.
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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