What Goes Up Must Come Down

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 1.29 percent month-over-month in November. This brought the Manheim Used Vehicle Value Index to 134.5, which was a 7.8 percent increase from a year ago, and the lowest level since August.

On a year-over-year basis, all major market segments except midsize cars saw gains. SUVs/CUVs, pickups, and vans outperformed the overall market.  

Though wholesale market values saw strength in the spring and summer as a result of growing retail demand, most of the gains since August were a result of the recovery following Hurricane Harvey and Hurricane Irma. As has been the case with prior devastating storms, used vehicle prices are now returning to pre-storm levels. Underlying vehicle depreciation rates have been accelerating to catch up to where prices would have been without the abnormal demand and scarce supply in September and October.

Rental risk pricing also weakens. The average price for rental risk units sold at auction in November was up three percent year-over-year. Rental risk prices were down two percent compared to October. Average mileage for rental risk units in November (at 43,800 miles) was one percent above a year ago.  

New vehicle sales impress again in November. November new sales volume increased one percent year-over-year with the same number of selling days compared to November 2016. November seasonally adjusted annual rate (SAAR) came in at 17.4 million, the third straight month of over 17 million SAAR and the longest streak of 2017. Cars continue to see sharp declines as sales in November fell nine percent compared to last year, with all major car segments having sales declines. Light trucks outperformed cars in November and were up eight percent year-over-year. New vehicle sales year-to-date are down two percent compared to last year.

Combined rental, commercial, and government purchases of new vehicles were down one percent, led by declines in rental (-4 percent) and government (-6 percent) fleet channels. Overall fleet sales are down nine percent for the year versus 2016.

New vehicle inventories remained below four million units, but inventories did tick up from October and are at their highest level since June.

Used sales declined in November. According to Cox Automotive estimates, used car sales decreased by four percent year-over-year in November. The November used SAAR decreased to 34 million units as used car sales took a backseat as momentum favored new vehicle sales. The used market is still on pace to come in at 39.1 million units for 2017, which would represent growth of nearly two percent over last year.

Economy continues to chug along. Real GDP growth in the third quarter was revised up to 3.3 percent, exceeding expectations again and beating the second quarter’s growth of 3.1 percent. Consumer confidence increased again in November, setting an official 17-year high. Households are feeling more upbeat about the outlook for the U.S. economy, and that should mean strong spending this holiday season. Big wild cards that could impact the economy remain on the calendar for December, namely tax reform and the looming debt ceiling and federal budget showdown.

Expect pricing weakness for next several months. Depreciation has accelerated for most vehicles to catch up with the abnormal pricing performance in September and October. This will likely continue through at least December as the Manheim Index should trend closer to its value in August. As we look ahead to the new year, we will likely miss the normal "bounce" in used vehicle prices in March as tax refunds will again be delayed as part of the IRS effort to combat identity fraud. Prices should be on firmer footing by April, much like this year, as retail demand kicks into gear.