December 2014 Wholesale Used Car Values Trend Report

Wholesale prices: upward trend now firmly entrenched

If October and November suggested wholesale prices were stabilising, and beginning an upward march, December has confirmed that prices really are heading north. Manheim Consulting’s used vehicle index is now 1.8% up year-on-year.

Interestingly, according to Manheim, and based on pure statistics alone, 2011-2014 have actually shown the least volatility in wholesale pricing, since they began tracking pricing in 1995. A combination of macroeconomic factors coupled with efficient remarketing appears to have been responsible in stabilising prices during this period of fragile economic growth.

Used vehicles: sales down, but dealer profits are up…

According to research by Manheim, although total unit sales declined 4.1% in December – and 1.4% for the entire year, operators are expected to report record profits in 2015. But that is due primarily to increased operating efficiencies. Some of the efficiencies are also being driven by the network consolidation that has taken place.

Manheim also report that CPO sales in 2014 are expected to have topped 2.3million units, representing an increase of 10% on an already record 2013 level. The high growth trend shows no signs of bucking, with 2015 expected to represent a fifth straight year of record sales. Higher off-lease volumes are key to driving these numbers.

Rental risk market: pricing continues to climb

Rental risk unit prices showed increases both on a monthly and yearly basis. Reflecting the stability noted above in wholesale prices, rental risk prices have also shown little volatility in the period spanning 2011-2014. This is noteworthy in 2014, given the harsh weather in the early part of the year, coupled with significant manufacturer recalls that went on throughout the year.

Rental risk units sold in December 2014 easily beat out the 2013 low level. But average mileage in December climbed to a record high of over 47,000 miles. Research suggests that many of the vehicles with the highest mileage were sold in the minivan and sports car segments; despite the influx of higher mileage vehicles, both segments displayed price inflation in common with other categories.

Mid-range vehicles lead the way on price-stability

Vehicles in the $13-15,000 price range exhibited the greatest pricing retention in December, whilst the $8,000 to $10,000 segment, was the softest. But as expected, the lowest end of the market (vehicles under $7,000) exhibited stable demand and pricing. One feature that was noteworthy in late 2014, was the use of down payment deferral programs. Coupled with potential issues in 2015’s tax refunds, this may signify resistance to the usual tax season spike in pricing for lower-end units.

Midsize cars performed surprisingly well in residual retention. Any thoughts that dealers might limit their price offering in the face of a competitive new vehicle market were not realised. Remarketing is both profitable in new and used vehicle markets.

The auction price of dealer-consigned units increased in December, continuing its three month increase. Interestingly, average mileage has declined significantly from the September high, but is still in excess of that twelve months ago.

According to Manheim, average auction prices for the rental risk market (adjusted and unadjusted for mileage and mix) ticked up month-on-month in November – but are still down compared to 12 months ago. Looking back, it appears that a glut of below average condition vehicles, as well as greater oversupply generally, was responsible for the sharp fall in October’s prices. In contrast to year-on-year prices, November saw increased auction volumes of rental risk units year-on-year. However, on a seasonal basis, November is always the lowest volume month of the year. But average mileage surpassed the 45,000 mile threshold for the first time ever.

Luxury vehicles clawing back price

Unquestionably, recent months, has seen the decline in luxury car pricing. But the luxury sector is now fighting back, although admittedly due to the decline, they are rising from a low base with significant ground to make up. On a seasonal basis, the market will expect to see traditional increases in luxury lease-returns, and it will be interesting to see if the current come-back in luxury price residuals can be maintained. As in previous months, the compact car market shows competitive pricing (used and new).

Meanwhile, vehicles in the $8,000 to $10,000 price range which have taken a pounding in recent months, after ticking up in October, are now showing weak demand again. Vehicles in the $13,000 to $15,000 appear to show the strongest relative pricing on a segment basis.

At auction, Dealer consigned-units, although experiencing a 2% rise in average mileage, still showed a 1% increase in average selling price.

Posted by: Farra Majid on Thursday, January 15th, 2015 at 9:08 pm in DEALERS, INDUSTRY