Economic Slowdown Impacting Wholesale Resale Prices

CARMEL, IN – A slowing economy and weak retail demand combined late last year to cause a year-over-year decline in wholesale vehicle prices in the last two months of 2006.

by Staff

February 5, 2007

3 min to read

CARMEL, IN – A slowing economy and weak retail demand combined late last year to cause a year-over-year decline in wholesale vehicle prices in the last two months of 2006, according to the latest issue of Pulse, released by ADESA Analytical Services. The report, which provides a periodic review of economic indicators in the vehicle-remarketing industry, also notes that employee discounts widely available in 2005 also impacted the current vehicle marketplace in several ways. According to Tom Kontos, vice president of ADESA Analytical Services, “The big story of 2006 in my mind is the weakness of retail used-vehicle sales, which were the lowest we’ve seen in the new millennium. Some of this is due to the maturation of the economic expansion, which is now more than five years old. However, it’s also important to note that broad employee discounting in 2005 may have brought forward used-vehicle sales that otherwise would have occurred in 2006. “Regardless of the cause,” said Kontos, “the loss of more than 2.6 million units of retail used-vehicle sales in 2006 dampened demand and led to gradually declining wholesale prices. I expect this softness to continue into 2007 unless and until used vehicle sales are triggered by greater dealer discounting, ample tax refunds and more solid economic growth.” Other key findings detailed in Pulse include:

Economic growth rates for the first part of 2007 are expected to be around an annual rate of 2 percent, driven in part by a slow housing market.
New-vehicle inventories rose at year-end 2006, but were below year-ago levels, which bodes well for continued relative stability in new-vehicle incentives.
Retail sales of new vehicles have slowed in part due to higher interest rates and a slowing economy. Sales are expected to be flat to slightly down in 2007.
Despite dealer discounting, retail used-vehicle sales were lower throughout most of 2006, especially in light of the absence of trade-ins generated from stronger new-vehicle sales in 2005.
Higher interest rates and greater lease subvention led to higher lease penetration and growth in lease origination volume in 2006 despite lower new-vehicle sales.
In the wholesale used-vehicle market, there was a substantial amount of month-to-month volatility in prices by model class, driven in large part by gas prices and changes in economic growth rates. Weather was a major factor in the drop in gas prices in 2006, considering the absence of hurricanes and a milder winter.
Volumes at auction were up on a year-on-year basis throughout much of the year and for most consignors, ending the year up by an estimated quarter-million units in 2006.
New-vehicle sales of commercial fleet vehicles rose by more than 50,000 units in 2006. About half of this growth was offset by declines in rental fleet sales. These vehicles will contribute to auction supply over the next 36 months.
ADESA Analytical Services publishes the annual report, Global Vehicle Remarketing and the periodic Pulse report. The latest edition of Pulse contains 60 pages of almost 50 graphs on everything from GDP to SUVs. The publications cover the $82 billion vehicle-remarketing industry and the $375 billion used-vehicle market in the U.S. and Canada.