State of Auction Industry Report Sends Positive Signals

While wholesale vehicle prices may be easing down, several other key metrics measuring auction performance are moving up from pandemic-era lows, according to the annual State of the Auction Industry report delivered March 27 during the Conference of Automotive Remarketing in Phoenix.

Larry Dixon, vice president of auction data solutions for the NAAA, shared key metrics points and takeaways that came from a recently completed 2023 survey of wholesale auto auction transactions among NAAA member owners and operators.

The Latest Statistics Story

Looking at sales volumes, the industry has passed the low point from the pandemic period, with NAAA member auctions up last year as 12 million vehicles were entered for sale, and of those, 7.3 million vehicles sold, Dixon said.

That represents an 11% increase compared to 2022, and a conversion rate of 60.7%, up slightly from the previous year. That rate surpassed typical ones from 2019 and previous years.

Members reported that average wholesale prices were down last year, falling by about 9.6% from 2022 levels. But despite that drop, prices were still 34% higher than they were in 2019.

“This probably doesn't come as a surprise to many of you, but we still have some ways to go before prices come anywhere near where they were before the pandemic,” Dixon said.

In terms of total gross value of vehicles sold, prices were down but volume was up to about 700,000 units. On net, the total gross value of vehicles sold last year resembled values in 2022, which equates to about $110.6 billion, or four tenths of a point above 2022 figures.

“Wholesale prices are growing over the first quarter of the year but are not expected to grow to the extent they did last year,” he added.

In-Lane Versus Online Auction Vehicle Volumes

The NAAA this year changed how it interprets and extrapolates data from the 2023 member survey so it could better report on in-lane and simulcast auction sale characteristics, Dixon said.

Among the insights from respondents:

• About 50% of vehicles were sold to in-lane bidders and 50% were sold to online bidders or buyers.
• 52% of dealer vehicles were purchased by in-lane buyers and 48% were purchased by online buyers.
• Among commercial vehicles, 47% were bought in-lane, and 53% were purchased online.
• Conversion rates for in-lane simulcast sales: For dealer vehicles it was 52% in 2023, while commercial vehicles came in at 68%.

The interpolation of the annual survey underscores the efficiency of the auction industry, Dixon said. Deeper data provides the NAAA with a better understanding of how its members handle the volume and number of vehicles going through member auctions,

“NAAA Chairman Garrison Hudkins likes to say that auctions are not only remarketing companies, but they're also logistics companies, marketing companies, banking organizations, and service companies,” Dixon said. “And let’s not forget, they're also major employers. It's important to consider the fundamental role that 340+ NAAA member auctions play in the auto industry each year facilitating the exchange of millions of vehicles worth over $100 billion.”

The amount of commerce these remarketing supercenters make possible deserves to be called out, he added.

Recent Auction Data Points to More Activity

Year-to-date AuctionNet results are based on NAAA’s wholesale sales database of about 265 NAAA members in the U.S, which is about 81% of NAAA U.S.-based auction members who contribute their data on a weekly basis.

“Like we saw with survey results, auction sales were higher last year by 6% year over year exceeding 6.1 million units,” Dixon said. “That growth trend jumped up even more continuing into the first couple of months of this year. Sales in January were up by 9% year over year, and they jumped to 17% growth through February with net sales up by 13% year to date through the first two months of this year.”

Commercial sales are driving this increase, he said. “There are far more commercial vehicles running through the lanes today than there were last year. Overall, commercial sales were up 34% year to date, while dealer sales were up by less than 1%.”

What’s driving this is new sales into fleet, and especially sales into rental fleets, he said. “They remained relatively flat until last year, and we started to see some meaningful growth in the past year. New vehicle sales into commercial fleets were up by almost 30% last year, led by a 58% rise in sales into rental fleets.”

Off Lease, Repos, and Auction Prices

Meanwhile, lease and repossession volumes are also driving the increase in total auction sales, Dixon said, adding: Sales are up across every age group of used vehicles: 1-3-years, 4-6 years, 7-10 years, and 11+ years. But most of the growth has happened in the 1-3-year-old block, given that an increase in new vehicles sales and lease originations during 2020-21 that are now coming into the off-lease market. About 75-80% of leases are written with a 36-month term.

But in the second half of 2021 new lease originations fell sharply during the pandemic supply constraints, which means off-lease volume will soon start to drop off by Q3 2024, Dixon said.

“Off-lease volume has trended up to start the year, but we shouldn't expect that to continue as we get into the back half of the year.”

An increase in 7+ year old vehicles are being driven mostly by repossessions. Dealer volume in that category is up 10% year over year, while commercial volume is up by 35%.

Auction prices were flat through February before they began their typical seasonal climb during the first half of March rising by 2%.

“When we compare this year's trend to what happened last year through the first quarter, we had a really strong Q1 last year in terms of wholesale auction prices, with prices growing by 6% over the first quarter last year,” Dixon said.

In related trends, new vehicle prices are coming down, wholesale supply is ticking up, and the prevailing high interest rate environment makes it unlikely that “we'll see price growth anywhere near what we experienced last year as the tax refund season plays out,” he said.

Per the latest release of IRS data through mid-March, about 49.2 million tax refunds have been issued so far this year, which is about 52% of what had been distributed through the end of May 2023.

From a prior year standpoint, prices in February were 10% below February 2023, and 20% lower than the high watermark reached in January 2022.

Looking ahead, lower new vehicle prices and higher incentives should cause auction prices to continue to fall as the year progresses, compared to earlier post pandemic highs, Dixon said.

Across segments, the market is seeing more crossover and SUV units rolling through the lanes this year, with volume up 30% YOY, resulting in downward price pressure.

Large pickups trucks in general and midsize car prices are holding up relatively well, he said. Depreciation has been below average for large pickup trucks for about 14 years.

Electric Vehicle Resales Values Plunge

On EVs, Dixon reported:

EVs continued to comprise a very small 1.2% of total auction sales net volume. But sales are rising fast. During the first two months of 2024, they were up by 86% year over year, led by a sizable jump in Tesla volume.

While Tesla sales were up 133% in February 2024 compared to a year earlier, EV depreciation has been well above average. Many models have seen depreciation rates of 30%+, which Dixon called quite substantial. The three-year-old vehicle retention rate was 22 points lower than in February 2023.

The drop in retention rates for EVs has been nearly three times that of gas-powered vehicles, Dixon said.

Electric vehicle auction prices remain under pressure and will continue for at least the near future. When new EV prices are cut 10-20%, that will diminish wholesale prices and values for EVs. Expect above average depreciation for EVs moving forward as they continue to build a larger presence in the used and new vehicle markets.

In response to questions, Dixon said he believes vehicle prices will continue to fall from current levels but that an unlikely 35% drop to 2019 levels would be “calamitous.”

“I think it's important to point out that U.S. vehicle demand and prices were rising before the pandemic for both consumers and dealers. They were demanding more used vehicles. So that's another reason why, hopefully, we don't go back to where prices were four years ago.”

Originally posted on Automotive Fleet