— Auction prices in 2004 continued the firming pattern identified in mid-2003 after three years of wholesale used vehicle price erosion, according to Tom Kontos, vice president industry relations and analytical services for ADESA Corp., a nationwide auction chain headquartered in Carmel.For 2004 as a whole, average prices at the nation's largest auctions were up 1.3 percent compared to 2003. “Although this might seem trivial when considering this equates to an average price gain of $118, it is important in that it makes a positive dent against the $1,060 loss in average annual prices that took place between 2000 and 2003,” said Kontos. “For this reason, we have been referring to the wholesale price environment as one of recovery — and that recovery has not yet run its course. We look for 2005 to be a continuation of the firming price environment, with some seasonal fluctuations.”The second trend cited by Kontos was that the general price improvement was not experienced by all vehicle model classes equally, and in some classes the price erosion continued. For example, prices for compact cars enjoyed an 8.9-percent increase, while full-size SUVs suffered a 5.9-percent price drop during 2004. “High gasoline prices during 2004 were partly to blame for this polarity, but the high incentives required to sell the proliferating models of full-size SUVs probably share an equal, if not greater, burden,” said Kontos. “These trends suggest that the ‘bloom' may finally be ‘off' the large-SUV ‘rose' in U.S. auto sales, although again, we'll look to events in 2005 before we draw any conclusions.”Average prices in December 2003 were unusually low and represented a short-term break in the firming pattern seen since May 2003. “Nevertheless, we maintained that prices would continue their overall recovery, although not as dramatically as the year-over-year increases might imply. Now that the results are in on the various indicators we produce and monitor, it's clear that the wholesale used vehicle market generated impressive results in December, even after accounting for the unusually weak comparable month in 2003,” said Kontos.According to ADESA's indicators, average wholesale prices, dealer activity, and inventories at auction were all higher in December than prior-month and year-ago levels. In December, average wholesale prices rose by 3.8 percent year-over-year, the ADESA Auction Dealer Optimism Index rose by 3.2 percent pts, and the ADESA Auction Inventory Index was more than 16 points above its November level.The key driver of these results appears to be continued strong retail demand, especially among independent used-car dealers, along with the continued shortfall of off-lease volumes. Dealers appear to be stocking up for an anticipated strong and early Spring Market in 2005. Average prices rose sharply despite strong year-end incentives.Average auction prices in December, according to ADESA Analytical Services' monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class1, were up 3.8 percent from year-ago levels, marking the ninth increase in the last 10 months (a modest decline took place in October). Average prices were up almost $250 (2.7 percent) compared to November.Prices for nearly-new vehicles (current and one-year-old models) registered their first gain (3.2 percent) after three months of gradually lessening declines. We believe this reflects the close-out of the 2004-model year, as model-year-end incentives and the introduction of the new models tend to have their greatest impact on nearly-new vehicle prices in September and October.For the sixth consecutive month, compact cars had the strongest year-over-year price gains, and full-size SUVs had the sharpest y-o-y price declines. Average prices in both these categories again had double-digit, year-over-year movements, though in opposite directions. High gas prices are clearly a major contributor to this trend, although factors such as the extremely high new-vehicle incentives on large SUVs have also played a significant role.The ADESA Auction Inventory Index closed the year at relatively high levels. The index stood at 147.3 – up from 130.9 at the end of November and up 1.0 percent from its year-ago level of 145.9. ADESA Analytical Services estimates this represents approximately 38 days of auction sales, which will exert some downward pressure on wholesale prices in the coming month.The ADESA Auction Dealer Optimism Index registered a significant gain (3.2 percent pts.) in December. The index measures dealer “optimism” as the year-over-year change in dealer consignment “conversion rates” at ADESA auctions. The December index shows that dealers purchased a higher percentage of vehicles offered for sale by other dealers at ADESA auctions than they did during the same period in the prior year. ADESA Analytical Services believes the strong increase indicates that purchasing dealers stocked-up on units they planned to sell during the holidays or early in 2005.