The Car and Truck Fleet and Leasing Management Magazine

ADESA’s Pulse Concludes Economy, Used Car Market, Poised for Strong Second Half

October 16, 2003

The overall economy, retail auto sales, and wholesale used car market activity all appear to have rebounded in the second quarter – a rebound that will last into 2004, according to the latest edition of ADESA Corporation’s Pulse. The Pulse report cites a rebound in retail used-vehicle sales beginning in June that caused wholesale used-vehicle prices to reach an “inflection point” after a three-year downward trend due to growing new vehicle incentives.

The latest Pulse report, which provides a macro-to-micro review of statistics relating to the $81 billion vehicle remarketing industry, suggests that strong second quarter GDP growth, a recovery in manufacturing, and a bullish stock market run are among the factors indicating a strong second half for 2003. According to ADESA Analytical Services estimates, retail prices for used vehicles have reached an historic low as a percentage of average new-vehicle transaction prices (i.e., retail prices after incentives). This is driving retail demand for used vehicles, which in turn is causing dealers to aggressively bid for additional inventory via the nation’s wholesale vehicle auctions.

“To be sure, downward pressure on used-car prices in the form of high new-car incentives still exists,” said Tom Kontos, vice president of industry relations and analytical services for ADESA Corp. and the report’s author. “However, we are encouraged by data that shows retail used-vehicle sales are increasing and in turn, wholesale prices are firming.”

Even with firmer prices, the ADESA Dealer Optimism Index included in Pulse confirmed that conversion rates (vehicles sold as a percentage of vehicles offered at auction) increased beginning in May. This increase reflects the strength of demand from dealers seeking to obtain needed inventories of used cars in light of strong retail demand. Also, ADESA’s Auction Dealer Inventory Index indicates that excess supplies of used vehicles in storage at auctions have been depleted – providing more support for expectations that auction prices will continue to firm.

The latest issue of Pulse also includes a section on the total loss recovery (salvage) auction industry. Included are trends in “actual cash value” (ACV), or the value of a vehicle immediately prior to determination of total loss, compared to wholesale used vehicle prices. The report shows that ACVs often lag rapid changes in wholesale used-car market values and therefore may understate a totaled car’s value in times of rapid used-car price increases, or overstate its value during times of rapid downturn.

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