Wholesale Prices Unchanged In September
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Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) remained unchanged between August and September. Non-seasonally adjusted prices declined 1 percent during the month. The Manheim Used Vehicle Value Index stood at 126.9 for September, an increase of 1.7 percent from a year ago.
The strength in wholesale pricing is explained, in large part, by current and past increases in new vehicle transaction prices (even after adjusted for mix shifts). For example, the new vehicle component of the CPI (which further includes a quality adjustment) has increased by 1 percent over the past three years, and a straight average of new vehicle transaction prices is up nine percent since 2013. As such, wholesale used vehicle prices relative to new vehicle prices are not out of line with historic norms. Additionally, higher retail used unit sales and stabilizing margins have kept dealers active bidders in the wholesale market.
The coming seasonal forces. The seasonal headwind to wholesale pricing has always been strongest from Labor Day to Thanksgiving. And, statistics show that the seasonal pressure on wholesale pricing in October has not diminished over the past 20 years, even though new model introductions are increasingly scattered throughout the calendar year.
Pre-selling the tax refund season with the use of down-payment deferral programs has, however, made both November and December relatively stronger pricing months than in years past. Indeed, in each of the past three years, November (which had historically been the weakest month for wholesale pricing) was slightly stronger than October, statistically speaking.
Rental risk offerings have lower mileage, better mix, and higher quality. The average price of a rental risk unit sold at auction in September reached a record high of just over $17,000. That record price was driven by lower mileage and a better mix of vehicles being sold in better condition. Our index of rental risk pricing adjusted for mileage and broad market class shifts was down one percent for the month and year-over-year.
In the third quarter of 2016, vehicles with a grade of 4.0 or higher accounted for 42 percent of all rental risk sales. In last year’s third quarter, vehicles in that condition accounted for only 34 percent of sales.
New vehicle sales strong; used vehicle sales stronger. The seasonally adjusted annual rate (SAAR) for new vehicle sales came in at a better-than-expected 17.7 million in September. Aggressive incentives during extended Labor Day events were dialed back slightly as the month progressed; but with inventory levels still a bit pudgy, we expect competitive dynamics in the new vehicle market during the fourth quarter to be somewhat detrimental to used vehicle residuals. It will take a SAAR in excess of 18 million in the fourth quarter for this year’s sales total to be a record. Let’s hope manufacturers don’t chase that record.
In the first eight months of 2016, used unit retail sales were up 4.7 percent from a year ago. Dealer surveys mid-month suggested a modest uptick for September. We know for sure that CPO sales slipped 1.4 percent in September, but remained up 3.7 percent year-to-date.
Although CarMax’s earnings report for quarter ending August 31 was greeted less than enthusiastically by financial analysts, the key metrics of importance to future used vehicle values – same-store sales growth and gross margins – were positive. Same-store retail sales were up 3.1 percent (and considerably more if adjusted for the lower level of third-party subprime financing), and gross margins were stable.
Pricing trends by market class and consignor type. All major car segments had year-over-year price declines in September (and all major truck segments were up); but within cars, the sporty segment was up significantly. Within the SUV/CUV segment, small entry units were weak (-4.4 percent), while full-size units were up 6.5 percent.
A straight average of dealer-consigned units had a 2.7 percent increase in auction prices and a 1 percent decline in average mileage. Commercially consigned units had the same one percent decline in average mileage, but only a 1.6 percent increase in average selling price. A straight average of all auctions sales showed prices up more than 4 percent as a result of a higher share of commercially consigned units and a richer mix of vehicles.
Tom Webb is chief economist for Cox Automotive. Contact him at Tom.Webb@coxautoinc.com or follow him on Twitter at @TomWebb_Manheim.
