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Wholesale Prices Improve in April

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) improved 0.5% month-over-month in April.  This brought the Manheim Used Vehicle Value reading to 124.7, which represented a 1.6% increase from a year ago.

On a year-over-year basis in April, the mid-sized car category saw the largest decline, while only Pickups saw gains greater than the overall market.

Although the Manheim Used Vehicle Value Index increased for the first time this year on a month-over-month basis, used vehicle values have not collapsed the way many analysts have warned of for more than a year due to expected increases in wholesale supplies.  And, in fact, what weakness we have seen is probably more a result of excessive new vehicle inventory; not used.  At retail, the used vehicle market remains healthy and dealers have needed only a modest decline in auction pricing to maintain acceptable inventory turn rates.

Lackluster new vehicle market came in below expectations.  Franchise dealers have had more than four million new units in stock for the last three months. April new vehicle sales volume fell 4.7% year-over-year (albeit with one less selling day), with the industry lagging last year’s record setting performance on a year-to-date basis by 2.4%. The decline in sales is largely a result of continuing declines in car sales as volumes fell 11% for cars but only decline 0.1% for trucks. Retail sales declined 3.1% in April and are now down 0.5% year-to-date.

On the positive note, fleet deliveries were not pushed in April.  Combined rental, commercial fleet, and government purchases of new vehicles were down 12% in April, with the all-important rental segment down the most with a 12% decline.  Granted, however, that large decline was relative to a very high level a year ago.

Used vehicle retail sales continue to grow.  In the first quarter of 2017, total used vehicle retail sales (including private party transactions) were up 3.6%, with franchised dealer sales up 5%, and independent sales up 4%, according to NADA.  Our channel checks indicate the gains continued in April.

CPO sales ticked up modestly in April (+0.7%) and for the first quarter (+0.3%).  Again we would suggest that CPO weakness relative to the overall market reflects the lack of potential gross profit lift for certain brands and market segments.

Rental risk pricing eases on higher volume.  The average price for rental risk units sold at auction in April was down 2% year-over-year; prices were up 0.3% compared to March.

SUV/CUVs accounted for 33% of rental risk sales in April of this year versus only 23% last April.  Compact cars share fell from 33% to 26%.  Average mileage for rental risk units in April (at 39,500 miles) was 11% below a year ago.  

Strong labor market, rising wages, and dull GDP?  The preliminary estimate for Q1 2017 real GDP came in weaker than expected, with a very weak 0.7% quarter-to-quarter growth. Growth in consumer spending, a primary driver of economic growth, stalled to 0.3% - the slowest pace since Q4 2009. Even with lackluster GDP performance in Q1, the consumer is in a good spot right now as there is strong consumer confidence, evidence of increasing incomes, and low unemployment, which collectively should support continued healthy retail demand for autos.