Retail New And Used Sales Continue To Climb, Wholesale Values Remain High
May new vehicle sales surprise to the upside. New cars and light-duty trucks sold at a seasonally adjusted annual rate of 16.7 million in May. That was considerably above the consensus forecast that looked for something in the low sixteen million range. Clearly, analysts failed to appreciate the boost provided by five weekends and the Memorial Day pull-ahead of some June sales. Early estimates for June suggest that the selling rate will be in the low sixteen-plus million range.
Importantly, in May, average new vehicle transaction prices were higher and incentive spending was flat. Inventory levels, with the benefit of higher sales, fell below the sixty days’ supply mark. That suggests that the healthy pricing and incentive scenario can continue.
Dealer used vehicle sales on a record pace in 2014. The combined used vehicle sales of franchised and independent dealers were up four percent in May and 2.5 percent year-to-date. That, combined with increased sales in each of the past four calendar years, means that dealer used vehicle sales are on track to set a record in 2014.
Wholesale prices decline in May. Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) fell in May, but the Manheim Used Vehicle Value Index reading of 124.7 was still 4.7 percent higher than a year ago. Wholesale pricing in June continued to ease at a modest rate.
The strength in wholesale pricing reflects a strong retail market and only modest increases in wholesale supplies. Readily available retail financing at attractive terms has enabled dealers to achieve healthy profits on the subsequent retail sale of their auction purchases. In addition, the always-competitive retail used vehicle marketplace has become more so as franchised dealers increasingly focus on (and improve) this side of their business.
Gas prices in the spotlight again. Events in Iraq have put gas prices in the news again. But pump prices have changed very little, and customers appear indifferent to the issue. Increased energy production in the U.S. (and reduced gasoline demand) has made us less susceptible to such international shocks. Normal seasonal forces are also holding current prices in check.
The increased fuel efficiency of new vehicles also plays a role. The average fuel economy of a new vehicle sold in May was 25.6 mpg – an increase of 5.5 mpg from October 2007 (the first month the University of Michigan started monitoring). That series and the monthly price for a gallon of gas indicate the cost to drive a new vehicle 1,000 miles has trended down for three years.
This is not to suggest that rising gas prices would not be an issue for the economy. The fuel efficiency of the overall fleet has obviously increased less rapidly than for new vehicles alone. And low- to middle-income households remain sensitive to gas prices. That’s especially true now that other basic costs – like food – are on the rise.
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.
