CARMEL, IN and ATLANTA – Average auction prices in May, according to ADESA Analytical Services’ monthly analysis of wholesale used-vehicle prices by vehicle model class, were up 4.5 percent from year-ago levels. Average prices were up 1.4 percent compared to April. For the 11th consecutive month, compact cars had the strongest year-over-year price gains (14.2 percent), and full-sized SUVs had the sharpest year-over-year (y-o-y) price declines (-4.2 percent), in part due to high gas prices and hefty incentives on slow-selling big trucks.

The ADESA Auction Inventory Index rose from a low of 78.3 at the beginning of April to 112.7 at the end of May. The index is above its year-ago level (106.2) for the first time this year. ADESA Analytical Services estimates this represents approximately 30 days of auction sales. The rising inventories, concentrated in off-rental units from manufacturers, can be expected to be a moderating factor relative to price growth in the coming weeks.

The ADESA Auction Dealer Optimism Index registered a more moderate gain (1 percentage point) in May compared to a 2.5 percentage point increase in April and a 3.8 percentage point increase in February. (The index shows that dealers purchased a slightly higher percentage of vehicles offered for sale by other dealers at ADESA auctions than they did during the same period in the prior year.)

The tapering in this index may be a reflection of softer retail demand. According ADESA’s analysis of data from CNW Marketing/Research, retail used-vehicle sales were down 4.1 percent in May on a year-over-year basis, with franchised dealers experiencing a 4.5 percent y-o-y decline and independent dealers incurring a 3.8 percent y-o-y loss in unit sales. Although May sales were up month-over-month for both retailer groups, the loss in retail sales momentum is worth monitoring and factoring into price expectations for June.

After eight consecutive monthly increases, wholesale used-vehicle prices at Manheim (on a mix, mileage, and seasonally adjusted basis) slipped 0.7 percent in May. The Manheim Used Vehicle Value Index stood at 112.1 for the month, representing a 3.9 percent increase from May of 2004.

The double-digit increase in wholesale prices that occurred between April 2003 and April 2005 appears to have rectified most, if not all, of the secular imbalance between new and used-vehicle pricing. Accordingly, future wholesale price movements will likely have trends of shorter duration and be driven more by the normal month-to-month movement in the factors that influence price. Currently, many of those factors are offering conflicting signals as to the future outlook.