CARMEL, IN and ATLANTA – Although wholesale used-vehicle prices were already moderating in May, the employee discount caused prices to further soften in June and July. In June, the price impact was focused on GM vehicles, but as the other two-thirds of the traditional Big Three followed suit, the impact became more widespread in July.

New-vehicle discounts generally depress used-vehicle prices by some percentage of the incentive, with late-model used vehicles taking the biggest price “hit,” while older vehicles are more immune to those impacts. These results will also vary by model. However, new vehicle incentives have been at such high levels for many months, that Big Three incentives, according to, rose a relatively modest $131 and $113, respectively, in June and July on a sales weighted basis.

Probably more important than the actual increase in incentives is the “traffic” and trade-ins the incentives have generated at new-car stores (i.e., franchised dealerships). This has come at the expense of sales at independent used-car dealerships and has dampened auction demand. According to data from CNW Marketing/Research, retail sales at franchised dealers rose from 1.5 million units in May to 1.9 million units in June (up 4 percent year-over-year) and July (up 5.3 percent year-over-year). While sales by independent dealers have stayed at relatively high levels approximating 1.6 million units throughout this period, they were down from year-ago levels by 4.5 percent in June and 2.2 percent in July. Thus, franchised dealers appear to be largely “retailing-out” of their used-vehicle inventories, while independent dealers have not yet fully participated in the stream of used-vehicle sales the abundant trade-ins promise to generate.

These factors have combined to break the momentum of price firming we have been seeing in the wholesale used vehicle market since the spring of 2003. In fact, average prices fell in July on a year-over-year basis for the first time this year, albeit at a modest .1 percent. In total, average auction prices have fallen by more than $625 (6.3 percent) since May. Average prices for full-sized SUVs, which received the steepest employee discounts, fell from $15,113 in May, to $13,702 in July – a drop of over $1,400 (9.3 percent).

The prospect of continued softness in used-vehicle prices is likely, especially if franchised dealers bring significant volumes of excess trade-ins to auction. On the other hand, the availability of those units at auction would be welcomed by independent dealers eager to join the action in the retail sales arena.

At Manheim, as employee pricing programs for new vehicles spread in July, so, too, did the weakness in used-vehicle values. The Manheim Used Vehicle Value Index, which measures wholesale prices on a mix, mileage, and seasonally adjusted basis, fell in July for the third consecutive month and at a faster rate than in either May or June. The Index now stands at 108.8, down 1.7 percent from June, but still up 2.2 percent from its year-ago level.