Fleet Resale Prices Remain In Narrow Range

Fleet Resale Prices Remain in Narrow Range: After several years of increases, a straight average of commercial fleet auction prices declined slightly in 2015. This was driven primarily by weakness in the compact car segment. As in the overall market, pickups and vans enjoyed lower-than-expected depreciation. All market segments exhibited smaller seasonal swings in pricing during 2015.

The important midsize car segment of the commercial fleet market had a modest decline in pricing in 2015, despite having fewer miles at time of sale. Nevertheless, the average auction price of a midsize fleet car remained above the overall auction average. It used to be thousands less. That change occurred as auction sales shifted toward more dealer consignment sales, which are typically older, less-expensive units. With the average commercial fleet unit now priced right in the mix with many other types of auction units and sellers, the fleet reseller faces more competition in attracting buyers. Additionally, since the average wholesale price of a fleet unit has risen so much over time, it is important for fleet remarketers to recognize that their buyer base has also changed.  
 

In 2011 and 2012 and, to a lesser extent, in 2013, fleet managers availed themselves of opportunities to cycle out of fleets early to take advantage of higher wholesale prices. Interestingly, at the same time, some fleets were extending the service lives of their vehicles. As a result, the mileage on fleet units being remarketed became more dispersed. In 2014 and 2015, patterns returned to normal.

For midsize cars, average mileage has moved down in the past two years; but it remains above 70,000 miles. Prior to the recession, average mileage was more likely to be in the 65,000-mile range. For pickup trucks, average mileage ticked down in 2015, but remained close to 115,000 miles.

Fleet Management Companies Drive Remarketing Improvements
Fleet management companies (FMCs) have been pioneers in using analytics to protect residual values. For example, they study the impact that various vehicle options have on resale value or determining the optimal service lives for particular types of vehicles. FMCs have also been innovators as well as catalysts in moving the whole remarketing industry forward, using, for example, upstream selling and multiplatform listing.

All of this belies the common myth that fleet management companies are less interested in resale value since, generally, they do not carry the residual risk. The FMC/fleet manager client relationship, like most others in the remarketing world, is built on a true partnership working toward mutually beneficial goals.

 
Wholesale Prices Fall in February: In February, wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) declined at their fastest pace in more than three years. That brought the February reading to 123.3, a decline of 1.4 percent from a year ago.

February’s relatively steep decline in wholesale pricing – remember seasonally adjusted prices were up before the adjustment – resulted in the Manheim Index’s falling back to its long-term trendline. Given that the Index has been above-trend for 66 of the past 72 months, look for an extended reversal to cause lenders and lessors to reassess collateral risk and contract residuals. We expect the adjustments will be modest, however, and thus, the availability of retail financing will remain supportive to the used vehicle market in the near term.

Manheim Used Vehicle Value Index – February 2015
 

Rental Risk Pricing Declines: A straight average of auction pricing for rental risk units fell to its lowest February level in three years. Prices were off 4.1 percent from a year ago, despite an 11.5 percent decline in average mileage at time of sale. Our rental index that adjusts for broad changes in mix and mileage was down 5.5 percent from a year ago.

New vehicle sales into rental were up nearly 13 percent in the first two months of 2016. Given indications that rental car companies are over-fleeted, we expect this pace of deliveries to slow in the coming months and for the number of units entering the wholesale market to rise.

Market Class and Consignor Segment Trends: Luxury cars have outperformed the overall market in recent months; but on a year-over-year basis, they remain the second-weakest segment. Values for compact cars continued to fall, both in recent months and over the past year.

The total van market has a year-over-year decline in wholesale pricing, but it is all accounted for by minivans. Fullsize passenger and cargo vans have a 2 percent increase in pricing over the past year.

Unadjusted prices for dealer and commercial consignments fell from January to February, but were 2 percent to 3 percent higher than a year ago. Average mileage was 3 percent lower than last February. 

Excerpts from this month’s column were taken from the Manheim Used Car Market report, now available for download at www.manheim.com/services/consulting.

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.