ADESA Analytical Services has developed an auction inventory index to serve as a gauge of wholesale used vehicle market conditions. It is based on the level of auction inventories around the country. Manufacturers and their captive finance arms are the major users of auction storage lots for marshalling vehicles that will be remarketed in the near future.
The index shows the build-up in auction inventories by manufacturers and their captive finance arms during the post-Sept. 11 period last year. This was when wholesale prices and conversion rates fell sharply, and the index captures the “bubble” of vehicles at that time, especially the off-rental program vehicles processed by the automotive manufacturers. As the bubble was worked off from January through April of this year, prices and conversion rates improved. The index shows that since April, inventory levels have again climbed to last year’s levels. As a result, soft price conditions for the remainder of 2002 are anticipated.
The index also reminds remarketers that “no-sale-ing” units at auction usually is a no-win strategy. Not only does a remarketer forego today’s dollar for what quite possibly will be a lower dollar in the future (due to vehicle depreciation, interest expense, and the time value of money, as well as market conditions), but also the no-saled unit remains in the wholesale channel as another unit of supply. This factor adds to the downward pressure on prices that exists during periods of oversupply. Auctions are market-clearing devices and it usually pays to take full advantage of that characteristic by selling vehicles the first time they’re presented to dealers in the auction lanes.