Wholesale Prices Rise Slightly in June
Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) inched up in June after declining in each of the previous four months. This brought the Manheim Used Vehicle Value Index to a reading of 123.9 in June, which represented a decline of 0.1% from a year ago.
After peaking in 2011, wholesale prices remained strong and have moved in a narrow range ever since, despite ever-growing wholesale supplies. The pricing strength is a testament to solid retail markets, greater operating efficiencies, and good remarketing practices. Current wholesale pricing is now in line with historic norms and market fundamentals; but a further acceleration in wholesale supplies, plus strong seasonal headwinds, will likely put downward pressure on pricing.
New vehicle sales strong, transaction prices up. New cars and light-duty trucks sold at a seasonally adjusted annual rate (SAAR) of 17.1 million in June, down from a 17.7 million pace in May (a month that was boosted by several calendar quirks). Simply eliminating the questionable selling day adjustment would put the sales pace for both months on par with each other.
The SAAR on a three-month moving average basis was 17.1 million in June, the strongest pace in nearly a decade. Both incentive spending and inventory levels remain restrained. Indeed, in June, there were more cases of sales’ being lost due to restricted supplies, than sales’ being artificially boosted by manufacturer channel stuffing.
The average new vehicle transaction price was $33,340 in June, according to Kelley Blue Book. That was up 2.5% from a year ago. The rise was the result of model mix shifts, higher trim levels, and straight price increases. The government’s new vehicle component of the Consumer Price Index, which controls for mix and adjusts for quality increases, has risen 0.8% over the past year and 2.4% over the past three years. Given that the Manheim Index has eased over this time, the ratio between the two series has now returned to its normal range.
Used vehicle retail market remains solid. Total used vehicle retail sales rose in both April and May, after being down in the first quarter, according to NADA. CPO sales continued their record pace, with sales up 17.6% in June and 12.5% for the first half of the year. And, CarMax reported that same-store used unit volumes were up 4.9% for its fiscal quarter ending May 31. Analysts expect the new car dealership groups to show strong used vehicle operations when they report second-quarter results later this month.
Rental risk: Older, rougher vehicles push down prices. A straight average of auction prices for rental risk units declined 14.2% between March and June. After adjusting for broad shifts in market class and mileage, the decline was a more modest, but still significant, 6.5%. Much of the weakness was the result of older and rougher-condition vehicles’ being sold. For example, in the second quarter of 2014, 62% of the rental risk units sold were from one model year past and 23% were from two model years past. But, in the second quarter of 2015, only 31% of sales were from one model year past and 55% were from two model years past. Likewise, in second quarter of 2014, 45% of the risk units sold at auction had a condition grade of 4.0 or better. In second quarter of 2015, only 30% did.
Auction volumes for rental risk units were up significantly in June and for the first half of the year. Meanwhile, the number of new units sold into rental declined 6% in June (due to a significant reduction in GM deliveries), but were up 6.5% year-to-date.
Many dealers will no doubt like the near $2,000 reduction in the average auction price for a rental risk over the past two months, as it will allow them to greatly expand the customer base that they can get into a late-model used vehicle. But, of course, dealers will be successful only if they can complete the additional reconditioning work quickly and cost-effectively.
Market segment and price tier trends. Pickups and vans were the only two major segments with higher prices year-over-year. Within the van segment, full-size commercial passenger units and cargo vans were especially strong.
Within the pricing tiers, as has been the case all year, there was weakness in the $9,000 to $11,000 range and strength in everything above $15,000. The volume of vehicles offered in the $9,000 to $11,000 range was up considerably from a year ago.
A straight average of auction pricing was up year-over-year for both commercially consigned and dealer-consigned units. The average mileage for dealer-consigned has stayed closed to its year-ago level. The average mileage on commercially consigned units has declined.