Current Used-Vehicle Market Conditions and Outlook
Two of the nation’s auction market reports – Manheim’s Used Vehicle Value Index and ADESA’s Analytical Services – each provide a monthly analysis of the used-vehicle market conditions and an outlook commentary.
Headquartered in Atlanta, the Manheim Used-Vehicle Value Index applies statistical analysis to a database of more than 5 million annual used-vehicle transactions to measure used-vehicle prices, independent of underlying shifts in the characteristics of vehicles being sold.
Produced at the company headquarters in Carmel, ADESA’s vehicle price analysis is based on the AuctionNet database of nearly six million annual sales transactions from approximately 150 of the largest U.S. wholesale auctions. ADESA Analytical Services segregates the database using the J.D. Power and Associates Vehicle Segmentation Guide to study trends by model class.
The Manheim’s chief ecomomist, Tom Webb, produced this report:
September Starts Seasonal Slide
Unarguably, model year changeover is the most tumultuous time of the year for used-vehicle pricing. A pure statistical analysis, after discounting for mix and mileage changes, shows that used-vehicle prices on average slip 4.6 percent during the three-month period of September, October, and November. That decline is on top of the normal 1-2 percent that individual vehicles depreciate on a month-in and month-out basis. Historically, the seasonal slip in prices during October is twice as big as that of September, and this year the impact may be compounded by the high level of ’04 models still in dealer inventory. In addition to moving potential high-end used-vehicle buyers into the new-vehicle market, the high level of carryover stocks depresses used vehicle prices across the spectrum.
Incentives Initiate Month-End Price Slide
New-vehicle incentive spending for the entire month of September was unchanged from August according to data from Autodata. Hidden within that monthly average, however, are the large incentives that the domestic manufacturers applied in the final days of the month. Not surprisingly then, wholesale used- vehicle prices were noticeably weaker towards the end of the month. Indeed, at mid-month, wholesale prices were more than half a percent higher than August, but almost all of the gain was wiped out in the final week and a half of the month. Additionally, September’s month-end weakness was concentrated in the market segments most heavily targeted by the incentive activity, namely, light-duty trucks.
Price Movements by Market Class
Compact cars continue to achieve strong prices with the annual gain now in excess of 11 percent. We would continue to note, however, that a substantial amount of this improvement is due to a richer mix of vehicles being sold within the category — that is, they also had higher transaction prices when sold new.
Wholesale prices for mid-size cars, although still up for the year, fell sharply in September. The segment is coming under some pressure due to an increasing supply of off-rental vehicles.
Luxury car prices, after underperforming in the summer months, picked up in September. The strongest price segment of the wholesale market for September was full-size vans; compact van prices remained weak.
Wholesale prices for all SUVs were down 4.0 percent from their year-ago level. The price changes for the sub-categories of SUVs were: entry-level SUV +1.1 percent, midsize SUV –4.1 percent, large SUV –7.1 percent, and luxury SUV –5.9 percent.
ADESA’S market analysis reported:
The fall market is now in full swing. Typically this means that a large number of vehicles are being cycled back into the market after their first months or years of service as rental and fleet vehicles. In many cases, this is timed to coincide with model-year changeover, although this year that timing was delayed in parts of the country bombarded by hurricanes— including the large Florida rental market.
Based on the September market indicators, sellers generally found a solid market for their vehicles despite mounting auction inventories, slowing retail used-vehicle sales, and high model-year-end-clearance new- vehicle incentives. Perhaps these price-depressing factors were mitigated by the positive price impact of lower off-lease volumes. Still, it would be prudent for remarketers to set price expectations a bit lower when anticipating results for October, as the negative price impacts of higher auction inventories and new vehicle incentives gather a fuller head of steam.
Average auction prices in September were up from year-ago levels for the seventh month in a row, and were modestly higher than in August. According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class, average auction prices in September were up 1.6 percent from year-ago levels, and 0.1 percent relative to the previous month.
For the third month in a row, compact cars had the strongest year-over-year price gains, and full-size SUVs had the sharpest price declines for the same period. Average prices in both these categories had double-digit, year-over-year movements, though in opposite directions. Although other factors contribute to this trend, the impact of gas prices that have remained at high levels is impossible to ignore.
Retail sales of used vehicles slowed in September. According to data from CNW Marketing/Research, retail used-vehicle sales in September were down 6.3 percent year-over-year — only the second decrease in the last 16 months. Sales by independent used-car dealers fell 3.9 percent, while franchised dealers sold 8.4 percent fewer used vehicles that this time last year. Nevertheless, used-vehicle sales by independent dealers on a year-to-date basis are at their best levels in this decade.
The ADESA Auction Inventory Index was higher than its year-ago level for the third month in a row. The index stood at 136.8 at September month, end-up 6.0 percent from its year-ago level of 129.1. ADESA Analytical Services estimates that this represents approximately 35 days of auction sales- the first month since January that inventories have broken the 30-day mark, and further indication that the traditional fall de-fleeting season is upon us.
The ADESA Auction Dealer Optimism Index registered a modest decline in September. The index measures dealer “optimism” as the year-over-year change in dealer consignment “conversion rates” at ADESA auctions. The September index shows that dealers purchased a slightly lower percentage (-0.7 percent pts) of vehicles offered for sale by other dealers at ADESA auctions than they did during the same period in the prior year and reflect seasonal norms for dealer consignment conversion rates.