Kontos: High Gasoline Prices and Hurricane Katrina Keep Wholesale Used-Vehicle Prices Soft, in Wake of Employee Discount Programs

CARMEL, IN – The run-up in gas prices and economic uncertainty in the aftermath of Hurricane Katrina were among the factors sustaining the softness in wholesale used-vehicle sales prices already triggered by the summer’s new-vehicle employee discount programs, according to Tom Kontos, VP, ADESA Analytical Services, ADESA Inc.

Wholesale used vehicle prices fell an additional 1.9 percent in August, and were only modestly up (0.8 percent) on a year-over-year basis. Most impacted were the mid-sized and full-sized SUV model class segments, where prices fell 7.7 percent and 7.2 percent on a year-over-year basis, respectively. Conversely, compact car prices rose 8.3 percent year-over-year, again indicating that high gas prices are affecting consumers,’ and hence dealers,’ used-vehicle purchase decisions.

More dealer consignment units made their way to auction, in part from the excess trade-ins taken by franchised dealers during the strong new-car sales months of June and July. The vehicles that were wholesaled at auction represented only a portion of all the trade-ins franchised dealers have taken in during this period. A sizable number of the remaining trade-ins were sold to consumers, as franchised dealers again experienced year-over-year increases in retail used-vehicle sales in August, as they did in June and July. As a result, franchised dealers were able to meet much of their retail sales demand with units obtained through trade-ins and were not as active as bidders in the auction lanes during August. Moreover, independent dealers experienced a year-over-year sales decline in August, further dampening auction demand. This latter impact is another continuation of trends seen in June and July, where employee discounts drove more retail shoppers to franchised dealerships, rather than independent dealerships, said Kontos.

Looking ahead, the relatively low auction industry inventory levels in August may better allow volume increases from traditional fall defleeting to occur with less downward pressure on wholesale used vehicle prices. However, continued softness in average used vehicle prices is to be expected as long as independent dealers experience year-over-year sales declines. The prospect of year-over-year growth in independent dealer used-vehicle sales is not likely until later this month at the earliest, according to Kontos.