—Wholesale used vehicle prices (on a mix, mileage, and seasonally-adjusted basis) were unchanged in February. Before taking into account the seasonal adjustment, wholesale prices in February were up significantly (+2.0%). The Manheim Used Vehicle Value Index stood at 113.3 in February, which represented a decline of 1.9% from its year ago level.
A straight average of auction transactions (ignoring mix, mileage, and seasonality) shows prices rising roughly $500, or 5%, over the past six months. But adjustments for the richer mix and lower mileage of vehicles being sold, as well as seasonal factors, kept the rise in the Manheim Index since last August to just 1%. Dealers deal in real dollars - not mix, mileage, or seasonally-adjusted ones.
As a result, further increases in wholesale prices will likely be kept in check by the cap imposed by competing new vehicles and the budget constraints of potential retail used vehicle buyers. Newer-model used vehicles do well in February - a sign of things to come?
Prices for nearly-new used vehicles sold at auction in February were boosted by the continuing reduction in new vehicle inventories, fewer widespread new vehicle incentives, and a reduction in program vehicles coming out of the rental fleet. And, in keeping with the need to turn vehicles quickly during the "spring" market (which, at the wholesale level, actually starts in the dead of winter), dealers were willing to widen the already large premium they pay for retail-ready vehicles as opposed to the same vehicles in need of detailing. Commercial fleet prices remained strong.
Midsize cars coming out of commercial fleets continued to command top dollar at auction in February. Due to some early turn-ins, the average mileage on these units was significantly lower in February than in previous months. But, even after taking that into account, average prices were still up more than 3% from the previous month. Older, rougher cars show softer prices.
If there was any weakness in the wholesale market in February, it was for the older units. This was good news for many Buy-Here Pay-Here dealers since they have been struggling with higher vehicle acquisition costs for several years.
Consumer confidence jumps, but will the good times last? Consumer confidence in February reached its highest level in 5 ½ years. That was no surprise given the economic momentum and solid labor market going into the month. There is, however, reason to question whether the momentum can be sustained. A 20+% decline in new home sales in January, a troubling level of unsold inventory, and a spreading of the fallout from the sub prime mortgage industry suggest additional drags will be forthcoming from the housing industry. And, although the downward revision in fourth quarter GDP represents history, details in the report showed capital spending by businesses was weak despite strong profits and cash flow. Thus, the economy's future growth will remain squarely on the backs of consumers, the same consumers who, in large part, have already spent somewhat beyond their means. On the positive side, the GDP report, as well as February’s Purchasing Managers’ Index, suggests that, economy-wide, the manufacturing sector will see some relief now that excess inventories have been worked off.
Price Movements by Market Class
All vehicle market classes had year-over-year price declines in February, but, with the exception of sports cars, the movements were modest. Sports cars are a small slice of total auction volume (about 3.5%) and prices can fluctuate due to vehicle composition and characteristic shifts within the segment. In February of 2006 (as opposed to 2007), a significantly higher share of sports car sales was accounted for by newer (previous model year) vehicles.
Over the past half year, full-size pickups and SUVs have gained back much of the price loss that they suffered when gasoline prices reached their peak. February also showed a firming in the wholesale pricing for luxury cars.
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