Wholesale Prices Continue Rise In September
Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) rose for the fourth consecutive month in August. The Manheim Used Vehicle Value Index now stands at 122.8, which represents an increase of 1.7 percent from its year-ago level.
Dealers entered September with low new vehicle inventory levels overall and shortages for some key models. Statistically speaking, one of the most important determinants of late-model used vehicle pricing is the amount of new vehicle inventory sitting on dealership lots. As such, September’s rise in wholesale pricing was no surprise. In coming months, however, we expect new vehicle inventory levels to build and wholesale supplies to rise on the back of higher off-lease volumes. That should put some downward pressure on used vehicle values.
Franchised dealers enjoy strong used vehicle sales in September. Total used vehicle retail sales by dealers declined 1 percent in September, according to CNW. Franchised dealers had a 4 percent gain, while independent dealers suffered a 7 percent decline. This reflects two long-term trends: 1) franchised dealers’ retailing out of a larger share of the growing trade-ins they are receiving due to higher new vehicle sales and 2) some weakness in the lower- and middle-income households that buy a large share of the less expensive used units offered by independent dealers.
Rental risk prices at auction remain strong. Average prices for rental risk units sold at auction in September declined relative to August, but remained up 1.9 percent year-over-year. Average mileage was down relative to both August and a year ago. As has been the case since March, volumes tracked very closely to their year-ago level.
New vehicle sales pace starts to level off. September’s seasonally adjusted annualized selling rate (SAAR) slipped to 15.2 million, from 16.1 million in August. That decline was expected given that August sales were boosted (and September sales were hurt) by the pull-forward of Labor Day sales. For August and September combined, the SAAR was 15.6 million, which was in line with the year-to-date rate of 15.5 million and the full-year forecast. Most analysts expect that 2014 sales will reach, or slightly exceed, 16 million.
New vehicle sales in the near term may be negatively impacted by some decline in consumer confidence, but that will be offset somewhat by the growing number of returning lessees, who typically buy another new vehicle. The key for used vehicle values is how much manufacturers and dealers will have to incentivize sales to keep deliveries at desired levels. It appears now that they won’t have to be overly aggressive, although lease deals continue to crop up.
Many analysts and manufacturers argue that lease deals are not as detrimental to used vehicle values as cash-on-the-hood. In many instances, they are wrong. Both the new and used vehicle markets are monthly-payment-driven, and subvented leases can drive the monthly payment way below that required for a late-model used vehicle purchase of the same model. This becomes especially problematic when the leases are offered to consumers with less-than-stellar credit. And, of course, unlike cash on the hood, there is another impact that comes much later – that is, at lease-end. Subvented leases result in a significant increase in the percentage of vehicles not bought by the grounding dealer (unless a concession is given). That, in turn, creates a spike in wholesale volumes available in the open market.
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.
