Strong consumer demand drove an increase in volume and values for used vehicles in the second quarter as attractive financing put purchases within reach of more consumers. The Manheim Used Vehicle Value Index, a measure of wholesale prices adjusted for mix, mileage and season, increased 1 percent compared to the first quarter and rose 3.6 percent on a year-over-year basis, Manheim reported.
The automotive market led the continued recovery of the U.S. economy. Strict mortgage requirements have held back some purchases in the housing market, but readily available auto financing at attractive terms has made it possible for more consumers to buy a vehicle and afford slightly higher-priced models. Auto loan delinquencies have remained low, a sign of a healthy market.
U.S. dealers are on track for near-record used-car sales in 2014 thanks to the retail financing environment and growth in the certified pre-owned market. CPO sales, up more than 8 percent in the first half of 2014, will easily set a record this year.
The sweet spot in the market has also moved upward in terms of price. In June, the strongest pricing and lowest relative supply of vehicles in the wholesale market was in the $12,000 to $15,000 price range. In 2013 and early 2014, the strongest pricing was often found in the $8,000 to $10,000 price range.
"While the overall economic picture has been cloudy at times this year, the automotive market has been a consistent bright spot," said Tom Webb, Manheim chief economist. "Consumers may have trouble qualifying for a home loan under today's mortgage requirements, but they have the credit and resources to purchase a car. These favorable auto lending conditions show no signs of letting up in the short-term and should help the used car market."
Second-quarter pricing for vehicle segments included:
- Compact Cars, which have underperformed for the year, showed an improvement in the quarter compared to other segments. Wholesale values for compact cars ended June up 3.9 percent compared to the same period last year.
- Mid-size Cars, the largest segment of the market, showed a slight decline from the previous quarter but values still increased 4.8 percent from a year ago.
- Luxury Cars were the weakest segment in the market with values falling 0.8 percent over the past year. Ample supply and the deals offered on new luxury cars have put price pressure on used luxury cars.
- Pick-ups and Vans were the strongest segment, driven by demand from individuals and businesses for work vehicles. Prices were up 7.5 percent for pickups and 6.8 percent for vans during the past year.
- SUV and CUV values rose 2.5 percent over the past year. Compact and mid-size CUVs, utility vehicles built on lighter car platforms, have been an expanding part of the new and used vehicle market with consumers looking for both space and fuel efficiency.
Volumes and pricing should ease in the third quarter, which is typically a slower time for activity with the transition from the old to new models. A couple of added factors also are expected to bring down prices for the remainder of the year. These include more vehicles coming off lease, increasing supply of late model vehicles and rental units beginning to enter the market after a longer than normal delay this year from rental companies.
"An increase in supply of wholesale vehicles will inevitably put downward pressure on pricing," Webb said. "Used vehicle values shouldn't fall off a cliff, but they likely will decline the rest of the year. This easing of prices should be modest and not disruptive to the efficient functioning of the market."