CARMEL, IN – Wholesale used-vehicle prices continued their long-term firming trend in April, rising 4.0 percent on a year-over-year basis; however signs of softness in the spring used-vehicle market were exhibited in the 1.8-percent decline in wholesale prices versus March, according to Tom Kontos, ADESA chief economist. Normally, a seasonal rise in prices is expected in April relative to March.
Retail sales of used vehicles were down 2.4 percent on a year-over-year basis in April, and 3.1 percent year-to-date. High gasoline prices are one factor affecting retail demand and almost certainly are a factor leading to the strength of compact car prices relative to the softness of full-size and luxury SUV prices. These groups were again on opposite ends of the price-growth spectrum in April. Notably, compact cars were the only model class that showed a month-over-month average price increase in April, reported Kontos.
Offsetting the downward pressure on wholesale prices from lack of retail demand has been the lessening of new-vehicle incentives, which have dropped an average of about $500 since peaking during last year’s employee discount period. As a result, the average price of a used vehicle sold by a franchised dealer has recovered to its historical norm of about 60 percent of the transaction price of a new vehicle, after dropping to as low as 50 percent when incentives were rising rapidly after 9/11 through 2003, said Kontos.
In the background, auction supply continues to show signs of growth, with an influx of used rental and commercial fleet vehicles sold in the recent past by new-vehicle manufacturers, and with tapering declines in off-lease volumes.
“Our interpretation of these trends is that, though wholesale used-vehicle prices will show seasonal fluctuations, their year-over-year growth should continue to taper. In short, remarketers and dealers should expect less upside for used-vehicle prices at auction, especially as we move past the spring,” said Kontos.