Used-Vehicle Price Growth Moderating in April

Wholesale used-vehicle price growth appeared to moderate in April, as retail used-vehicle prices started to reach levels where they become less attractive than prices of new vehicles, according to Tom Kontos in ADESA's April Current Used Vehicle Market Conditions and Outlook.

The average retail price of a used vehicle represented 58 percent of the average new-vehicle price in February, based on ADESA Analytical Services' calculations using the most recent Federal Reserve Board data. 

When the average retail used-vehicle sales price exceeds 60 percent of the average new-vehicle sales price, a portion of used-vehicle demand tends to be "cannibalized" by new-vehicle sales, Kontos wrote. With wholesale prices growing 4 percent in March and 0.3 percent in April, the 60 percent used-versus-new retail price ratio may now be surpassed.

Evidence for this is that retail sales of used vehicles by franchised dealers (i.e., dealers who sell both new and used vehicles) were down 4.2 percent on a year-over-year basis in April, while new vehicle sales were up nearly 20 percent. On the other hand, independent dealers (i.e., dealers who only sell used vehicles) registered a year-on-year sales increase in April, indicating that shoppers who can only afford used vehicles are still plentiful, according to Kontos. 

Moreover, tight supplies of used vehicles and the budding economic recovery continue to create upward pressure on wholesale prices, as dealers bid aggressively in-lane and online for needed inventory.

Dealers who use efficient wholesale and retail tools are able to achieve quick inventory turn and respectable grosses despite higher wholesale prices and tight used-vehicle supply. These tools include online run lists and inventory management software that allow dealers to employ just-in-time inventory practices.

According to ADESA Analytical Services' monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class, wholesale used-vehicle prices in April averaged $10,579 - up 0.3 percent from March and 7.5 percent versus prior year. 

Full-size vans and full-size cars recorded the biggest year-over-year price gains and losses, respectively. But these segments are small and can often have volatile average price swings based on variations in such things as seller type and vehicle condition. 

Prices for most segments are moving with the overall market, although mini and full-size SUV prices did take a bit of a hit in April - perhaps due to rising gas prices over the last couple of months. Minivans registered above-average price gains during the month.

Prices were up for all seller types. Manufacturers registered a 0.7 percent month-over-month price increase and a 14.1 percent year-over-year rise; fleet/lease consignors experienced a 1.1 percent sequential price increase and a 12.4 percent annual increase; and dealers saw a 0.6 percent average price increase versus March and a 13.4 percent uptick versus April 2009.

ADESA Analytical Services estimates that auction industry inventory levels stood at 31 days at month-end compared to 40 days last April - continuing to indicate tight supply and high auction throughput.

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