August 2014 Wholesale Used Car Values Trend Report

Wholesale prices: back to normal

With the end of summer comes confirmation that wholesale used vehicle prices are falling back to their historical trend levels. According to research by Manheim*, wholesale used vehicle prices declined 0.7% in August: the fourth month in a row that prices have declined. As a result, Manheim’s used vehicle index is now 0.4% down from a year ago.

Why is this happening? According to Manheim, there are three main reasons:

  • Prices have been higher than usual for an extended period of time, and are now returning to normal
  • An oversupply of wholesale vehicles
  • Retail demand tailing off

So what’s in store?

Well if history is anything to go by, whole prices are expected to drop and stay below the trend line for some time. But they are not expected to match the 10% and 17% ‘dives’ that took place in early 2003 and late 2010 respectively. On both those occasions special forces were at play: a slumping economy and tight credit magnified the usual cyclical downtick in wholesale pricing. Fast forward to fall 2014 and we have improving employment and reasonable credit.

Retail used vehicle sales weaken, but profits hold up – leading dealers to add inventory

Whilst retail used vehicle sales declined for the third month in a row, dealers surveyed by Manheim continued to insist that units were being sold and margins were strong. Hence dealers continued to add inventory.

Focus on rental risk units

Auction prices for rental risk units have now declined for the last four months in a row. As a result the current average price is $1,200 less than the record high which was reached in April. But it is only $300 down from a year ago. In the round, Manheim’s rental risk price index (that isadjusted for mix and mileage) is down $1,610 from its March peak, and down $470 from a year ago.

But volumes sold at auction continue to be low. However, given the rental sector’s appetite for new vehicles (sales into rental up 10% in August), expect some older rental units to flow back in to the wholesale market.

Pickups the star performer!

Pickups and vans are the only classes that have increased their prices year on year. Likewise luxury cars have continued to have the softest price points: they have become victim to wholesale oversupply and pressure from new vehicle deals.

We noted that in June that the sweet spot continued to move up the price scale, according to Manheim, who analysed average mileage according to price tiers; that is still the case now: the strongest pricing is in the $12,000 to $15,000 price range, whereas the weakest is in the $9,000 to $10,000 range. Not unexpectedly, these findings are correlated with underlying changes of vehicle sales at auction.

Posted by: Farra Majid on Thursday, September 11th, 2014 at 3:27 am in DEALERS