Whole Prices Increase in April

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) improved 0.5 percent month-over-month in April. This brought the Manheim Used Vehicle Value reading to 124.7, which represented a 1.6 percent increase from a year ago.

On a year-over-year basis in April, the mid-sized car category saw the largest decline, while only pickups saw gains greater than the overall market.

Although the Manheim Used Vehicle Value index increased for the first time this year on a month-over-month basis, used vehicle values have not collapsed the way many analysts have warned of for more than a year due to expected increases in wholesale supplies. And in fact, what weakness we have seen is probably more a result of excessive new vehicle inventory, not used. At retail, the used vehicle market remains healthy, and dealers have needed only a modest decline in auction pricing to maintain acceptable inventory turn rates.

Rental risk pricing eases on higher volume. The average price for rental risk units sold at auction in April was down two percent year-over-year; prices were up 0.3 percent compared to March.

SUV/CUVs accounted for 33 percent of rental risk sales in April of this year versus only 23 percent last April. Compact cars’ share fell from 33 percent to 26 percent. Average mileage for rental risk units in April (at 39,500 miles) was 11 percent below a year ago.

Used vehicle retail sales continue to grow. In the first quarter of 2017, total used vehicle retail sales (including private-party transactions) were up 3.6 percent, with franchised dealer sales up five percent, and independent sales up four percent, according to NADA. Our channel checks indicate the gains continued in April.

CPO sales ticked up modestly in April (+0.7 percent) and for the first quarter (+0.3 percent). Again, we suggest that CPO weakness relative to the overall market reflects the lack of potential gross profit lift for certain brands and market segments.

Lackluster new vehicle market came in below expectations. Franchised dealers have had more than four million new units in stock for the last three months. April new vehicle sales volume fell 4.7 percent year-over-year (albeit with one less selling day), with the industry lagging last year’s record-setting performance on a year-to-date basis by 2.4 percent. The decline in sales is largely a result of continuing declines in car sales as volumes fell 11 percent for cars but declined only 0.1 percent for trucks. Retail sales declined 3.1 percent in April and are now down 0.5 percent year-to-date.

On a positive note, fleet deliveries were not pushed in April. Combined rental, commercial fleet, and government purchases of new vehicles were down 12 percent in April, with the all-important rental segment down the most with a 12 percent decline. Granted, however, that large decline was relative to a very high level a year ago.

Strong labor market, rising wages, and dull GDP? The preliminary estimate for Q1 2017 Real GDP came in weaker than expected, with a very weak 0.7 percent quarter-to-quarter growth. Growth in consumer spending, a primary driver of economic growth, stalled to 0.3 percent – the slowest pace since Q4 2009. Even with lackluster GDP performance in Q1, the consumer is in a good spot right now as there is strong consumer confidence, evidence of increasing incomes, and low unemployment, which collectively should support continued healthy retail demand for autos.

Tom Webb is chief economist for Cox Automotive. Contact him at Tom.Webb@coxautoinc.com or follow him on Twitter at @TomWebb_Manheim.

NAFA Fleet Management Association
http://www.nafa.org/