The used vehicle market continues its positive upward overall price trend started in the spring, as interpreted by Adesa, Manheim, Black Book and Kelley Blue Book.
Adesa Analytical Services reported that not only were average wholesale prices up on a month-over-month basis in May, they were up on a year-over-year basis for the first time since December 2007, the start of the recession.
The Manheim Used Vehicle Value Index stood at 109.1 for May, resulting in the first year-over-year gain in pricing since Oct. 2007. May marked the fifth consecutive monthly increase in wholesale used vehicle prices on a mix, mileage and seasonally adjusted basis.
Volume, Volume, Volume
These increases can be attributed to a lack of supply coupled with a healthy demand for used vehicles.
“With used vehicles remaining a relative bargain for consumers who could afford to buy a new vehicle, and both incoming and inventoried wholesale vehicle supply tapering, the wholesale price recovery looks to continue in the months ahead,” said Tom Kontos of Adesa in his monthly commentary.
Adesa estimated that auction industry inventory levels stood at approximately 37 days at the end of May—much lower than the 73 days around 2008 year-end and at parity with last May. The working down of inventories will continue to put upward pressure on prices in light of still-strong used vehicle demand.
Dismal new vehicle sales are pushing dealer consignment volumes lower, reported Manheim. In May, the seasonally adjusted annual selling rate for new vehicles remained below the 10 million mark for the fifth consecutive month.
In its index report, Manheim echoed Adesa’s supply/demand assessment: “Given that retail used vehicle sales have been flat (and actual demand higher), the resulting loss of trade-ins from new vehicles sales (the majority of which re-enter the wholesale market) has caused dealers to aggressively bid for late-model used vehicles.”
In addition, off-rental volumes into the wholesale market were off more than 30 percent in the first five months of 2009, Manheim stated. This has helped pricing for both program and risk vehicle sales.
Ricky Beggs, managing editor of Black Book, noted that the mileage of rental units in the market has climbed significantly. This mileage level is becoming a little more acceptable, Beggs stated. “There is a market, at the right price, for 2008 models with 46,000 to 53,000 miles,” he said.
With the overall decrease in used-vehicle supply compared to last year, the extra-clean units have become harder to find, which has often caused final bid levels to increase, Beggs noted in his “Beggs on the Market” report.
Beggs said auction volumes continue to be much smaller than auction operators would like.
All of the analyses showed that price movements by segment year-over-year reflected last year’s abnormal market. Wholesale pricing for large pickups and SUVs is up sharply from a year ago, when we had $4-a-gallon gasoline and heavy incentives on these vehicles in the new vehicle market.
Conversely, current wholesale prices for compact cars are down significantly from their extraordinarily high levels of a year ago. Today, there is a heavy supply of small-car new vehicle inventory, Manheim reported.
Ricky Beggs reported big swings up and big drops down in many used-vehicle segments. Black Book made value updates to 10,036 unique vehicles in a single day in June. But almost 95 percent of those adjustments were increases in value, with a strong $253 average increase.
Kelley Blue Book’s segment analysis was not as bullish.
In May, only five of Kelley Blue Book’s 20 segments appreciated, although the gains were relatively conservative (0.1 to 2 percent). This is in sharp contrast to April, where 11 segments appreciated in value. Of the segments showing strength, KBB said it expects that these vehicles are approaching a peak and values will flatten or begin to depreciate in coming months. KBB reported a 0.4 percent overall depreciation in May.
Hybrid vehicles, subcompacts and compact crossovers continue to incur the most depreciation, even as gas prices inch up. Car values depreciated 0.8 percent overall for the month of May, with much of the declines coming from the smaller car segment.
In terms of the effects of bankruptcy and brand discontinuation on residuals, Manheim reported that affected models (with a few exceptions) continue to perform well in the wholesale market. This is in spite of the fact that some new vehicle inventory is now being heavily discounted.