Wholesale Prices Rise For Fourth Straight Month
Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased in January for the fourth consecutive month. This pushed the January Manheim Used Vehicle Value Index to a reading of 125.3, which represented an increase of 2.5 percent from a year ago.
January’s price rise pushed used vehicle values to their highest level since April 2012. The fact that wholesale prices are now back to a level last seen when off-lease volumes were at their trough is contrary to expectations of most analysts. Wholesale prices are not, however, in conflict with the continued rise in new vehicle transaction prices (net of incentives) or the strong retail used vehicle results being reported by most dealers.
Used vehicle sales and profits remain strong. In January, dealer sales of used vehicles rose 1.4 percent, according to CNW. That was after both publicly traded and private dealer groups indicated strong used vehicle operations in the fourth quarter. Volumes were up with no sacrifice to gross or turn rates.
When final numbers for the seven publicly traded dealerships are reported, it is almost inevitable that fourth-quarter same-store used unit retail volumes will show a rise for the 22nd consecutive quarter. And it is possible that gross margins held steady after several years of decline. We expect that labor market and credit conditions will continue to be favorable for used unit sales for the remainder of 2015. Maintaining margin, however, will require superior inventory management in the face of what may be volatile industry conditions and easing wholesale values.
Market segment and price tier trends. In January, relative pricing strength across price tiers was extremely consistent and seemingly uninfluenced by shifting volumes for the various price points. This suggests an efficient market that has erased earlier price anomalies through the competitive bid process.
Wholesale pricing for compact cars was weak in January. That has been the trend for more than a year as a result of competitive pricing on the new vehicle side and abundant offerings in the wholesale market. The pricing pressure in this segment has only been intensified by the plunge in gas prices.
Auction prices for dealer-consigned units sold in January were noticeably higher than a year ago on growing volumes and slightly rising mileage.
New vehicle sales and pricing on track at start of 2015. New cars and light-duty trucks sold at a seasonally adjusted annual rate of 16.7 million in January. More than a handful of makes had their best January ever.
Kelley Blue Book reported that average transaction prices were up five percent from a year ago, driven in part by mix shifts.
Tom Webb is Chief Economist for Cox Automotive. 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.
