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Manheim Index Hits a Four-Peat with Another Consecutive Record High

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 0.75% month-over-month in August.  This brought the Manheim Used Vehicle Value Index to 131.3, which was a record high for the fourth consecutive month and a 3.4% increase from a year ago.

On a year-over-year basis, the mid-sized car category saw the largest decline (down 0.2%) in August, while pickups and vans saw gains greater than the overall market. Other car segments like compacts and luxury saw gains in August too.

Wholesale market values continue to show strength as a result of growing retail demand. Most of the increase in used vehicle sales is coming from double-digit year-over-year growth in sales of vehicles less than 4 years old. 

New vehicle sales continue to underwhelm in 2017. August new sales volume slipped 2% year-over-year with one more selling day compared to August 2016, but much of the decline was caused by Hurricane Harvey’s impact on southeast Texas. Cars continue to fall out of favor with consumers as sales in August fell 9% compared to last year, with all major car segments having sales declines. Light trucks outperformed cars in August and were up 2% year-over-year. New vehicle sales year-to-date are down 3% compared to last year.

Combined rental, commercial, and government purchases of new vehicles were down 4%, due to a decline of new sales into rental (down 11%), though some major OEMs pushed fleet sales in August. Retail sales were down 2% in August.

New vehicle inventories remained below 4 million units and are at the lowest level of the year.

Used sales softened in August. According to Cox Automotive estimates, used car sales also declined in August. The August used SAAR declined 5% to 38.1 million units from July’s 40.1. Used sales are up 1.2% year-to-date, but are expected to finish the year up 3% from a strong finish further supported by replacement demand in southeast Texas.

CPO sales fell in August (-1%) but are up 0.3% year-to-date. The passenger car share of CPO sales came in at 49% for August, as SUV/CUV/pickups began to dominate just as they have since 2013 in the new vehicle market.

Rental risk pricing improves in August.  The average price for rental risk units sold at auction in August was up 1% year-over-year, which was the first year-over-year increase since July 2016.  Rental risk prices were up 3% compared to July.  Average mileage for rental risk units in August (at 41,700 miles) was 2% above a year ago.  

Job creation slowing while wages beat inflation.  The Employment Report for August was weak especially compared to the previously reported trend for June and July. August saw 156,000 jobs created compared to expectations for 180,000. Job gains for the prior two months were revised down by 41,000. While disappointing against trends and expectations, the increase was strong enough to reflect growth. Unemployment moved back up to 4.4% (same as June).  Average hourly earnings were up 2.5% year-over-year, higher than the current 1.4% level of inflation. These economic fundamentals put the consumer in a continuing situation of seeing real income rise yet interest rates remain low. As a result, consumer confidence is high and personal spending is healthy and increasing.

Replacement demand in Harvey’s aftermath. Cox Automotive estimated that the total vehicles damaged by Harvey across the storm’s path will total 320,000 to 580,000 vehicles, which would be the most vehicle damage recorded in the U.S. from a hurricane. Replacement demand combined with a reduction in available supply will cause wholesale inventories to tighten for the next two to three months. Supply will be pulled from other regions, so the impact to the wholesale market will be widespread, providing additional support for continued wholesale price gains for at least the next two months.