Wholesale Prices Up Again in July
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Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased for the fourth consecutive month in July. The Manheim Used Vehicle Value reading was 127.0 for July, an increase of 2.3 percent from a year ago.
Although there was a near-universal expectation that wholesale prices would suffer in 2016 due to growing wholesale supplies, current auction values are not abnormal relative to several long-term historic relationships. Most notably, with respect to new vehicle pricing (when looked at using both the new vehicle CPI and average transaction prices), wholesale pricing is not exceptionally high. Monthly payment differentials and other financing terms (such as the typical down payment) also support the current new and used price relationship. And, as is oft noted, narrowing margins mean that all of the increase in wholesale pricing is not being totally borne by the retail used vehicle buyer.
Fleet managers buy more and sell more. In the first seven months of 2016, fleet managers purchased new units to be placed in service at the fastest pace since 2007. The double-digit increase in purchases from 2015 was driven entirely by trucks and vans.
Likewise, the number of commercial fleet vehicles being remarketed at Manheim auctions this year is at its highest level in nearly a decade. Despite the high volume, pricing for end-of-service fleet units remains high. In the midsize car segment, auction pricing was helped somewhat by lower mileage at time of sale.
We still consider the new vehicle environment to be relatively benign with respect to used vehicle values. Sure, incentive spending jumped at a double-digit pace in July; but much of it was tactical, and some of it was temporary. And, more important, it worked. Both inventory levels and balance ended the month better than where they started.
It is true that the streak of 27 consecutive quarters of same-store retail used unit sales gains by the seven public dealer groups came to an end in the second quarter of this year, but that was due to the high level of "stop-sale" units. It is expected that the repair of those units will speed up as the third quarter progresses, and that will support further retail sales gains.
Weakness in compact car pricing abates. Although compact cars remained the weakest of all the major segments over the past year, their pricing over the past three months outperformed the overall market. Modest price improvements and better inventory levels on the new vehicle side helped. Sports cars, pickups, and mid- and full-size SUVs are the only segments with significant increases in wholesale pricing over the past year.
Although there was a near-universal expectation that wholesale prices would suffer in 2016 due to growing wholesale supplies, current auction values are not abnormal relative to several long-term historic relationships. Most notably, with respect to new vehicle pricing (when looked at using both the new vehicle CPI and average transaction prices), wholesale pricing is not exceptionally high. Monthly payment differentials and other financing terms (such as the typical down payment) also support the current new and used price relationship. And, as is oft noted, narrowing margins mean that all of the increase in wholesale pricing is not being totally borne by the retail used vehicle buyer.
Fleet managers buy more and sell more. In the first seven months of 2016, fleet managers purchased new units to be placed in service at the fastest pace since 2007. The double-digit increase in purchases from 2015 was driven entirely by trucks and vans.
Likewise, the number of commercial fleet vehicles being remarketed at Manheim auctions this year is at its highest level in nearly a decade. Despite the high volume, pricing for end-of-service fleet units remains high. In the midsize car segment, auction pricing was helped somewhat by lower mileage at time of sale.
We still consider the new vehicle environment to be relatively benign with respect to used vehicle values. Sure, incentive spending jumped at a double-digit pace in July; but much of it was tactical, and some of it was temporary. And, more important, it worked. Both inventory levels and balance ended the month better than where they started.
Price Changes for Selective Market Classes
July 2016 vs. July 2015
Used vehicle sales continue to rise. Total used retail unit volumes increased five percent in the first six months of 2016, with franchised dealers up four percent and independents up seven percent, according to NADA. Preliminary numbers and channel checks indicate the gains continued in July.It is true that the streak of 27 consecutive quarters of same-store retail used unit sales gains by the seven public dealer groups came to an end in the second quarter of this year, but that was due to the high level of "stop-sale" units. It is expected that the repair of those units will speed up as the third quarter progresses, and that will support further retail sales gains.
Weakness in compact car pricing abates. Although compact cars remained the weakest of all the major segments over the past year, their pricing over the past three months outperformed the overall market. Modest price improvements and better inventory levels on the new vehicle side helped. Sports cars, pickups, and mid- and full-size SUVs are the only segments with significant increases in wholesale pricing over the past year.
Tom Webb is chief economist for Cox Automotive. Contact him at Tom.Webb@coxautoinc.com or follow him on Twitter at @TomWebb_Manheim.
