Tom Webb: And Don't Come Back Another Day...
Hurricane Sandy swept through the Northeast in the final days of October, but the aftereffects have been felt in the new and used vehicle markets ever since, and will continue to have an impact on inventories, prices, and sales volumes for months to come.
Sandy lifted used vehicle values in November by both reducing supply and increasing demand. Those forces will continue into December and the early part of 2013, and may mitigate some of the volatility that a possible shift in retail demand might cause.
In the wholesale market, used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) rose by 0.6 percent in the month of November. (Without the seasonal adjustment, prices were unchanged.) The November Manheim Used Vehicle Value Index stood at 122.6, which represented a one percent decline from a year ago, a 25 percent increase from the trough in December 2008, and a four percent decline from the all-time high reached in May 2011.
New car and light-duty truck selling rate surges to 15.5 million in November. New vehicle sales in November were boosted by the pickup of sales that were lost in the final days of October due to the hurricane and by the replacement demand that was created by the storm. The benefit of higher replacement demand will continue in December and January.
Despite the high new vehicle sales pace (averaging close to fifteen million over the past three months), there have been pockets of excessive inventory builds. Incentives have risen modestly (with more likely to come); but it appears that manufacturers are also willing to adjust production levels, which will help future used vehicle residuals.
Hurricane Sandy also increases used vehicle replacement demand. Used vehicle retail sales rose fifteen percent in November, with the dealer segment ringing up an exceptionally strong 31 percent gain, according to CNW. Full year sales are now set to reach the 41 million mark for the first time since 2007.
Although the fundamental drivers of used vehicle retail demand (especially credit availability) are likely to remain favorable in 2013, resolution of the fiscal cliff could have an impact on next year’s sales activity. There is a better-than-even chance that income tax rates on the middle class (the bulk of used vehicle buyers) will not go up next year. However, the future of the "temporary" two percentage point reduction in the payroll tax is less certain. One can argue whether the lower payroll tax is good economic policy, but one cannot deny that it has been beneficial to used vehicle sales.
Rental risk: volumes down, pricing stable. Due to the predictable increase in long-term rentals following Hurricane Sandy, most rental car companies partially delayed scheduled de-fleeting. Average auction prices for the available units remained steady in the $15,000 range, suggesting that that is the ceiling currently being imposed by the new vehicle market.
Pickups show pricing strength. Wholesale pricing for pickups has remained strong in recent months as increased activity in the building and services trades has supported retail demand. The heavy overhang of inventory in the new pickup truck market has had little impact on wholesale values since the auction activity in this segment is concentrated on older units with more than 100,000 miles.
Tom Webb is chief economist for Manheim Consulting. 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.
