New and Used Vehicle Markets Outperform Economy In July

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By Tom Webb
Chief Economist for Manheim Consulting
Author of "Manheim's 2010 Used Car Market Report"

Despite gloomy news for the overall economy in July, the new and used vehicle markets performed fairly well. New vehicles sold at a seasonally adjusted annual rate of 11.55 million in July, which brought the pace for the first seven months to 11.2 million, consistent with our full-year forecast of 11.5 million. Meanwhile, retail used vehicle sales increased by 9 percent in July, with certified pre-owned sales jumping 19 percent to their highest monthly mark in two years.  Click here to view graph depicting retail sales.

New vehicle inventory levels inched up in July, but the unit count remains very low. Indeed, today, there are more dealers complaining about the inability to get inventory from manufacturers than dealers complaining about manufacturers pushing units onto them.  This is a nice change – one that is good for the used vehicle market as well as the financial health of all industry segments.

Adjusted vehicle auction prices slip in July. Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) fell for a second consecutive month in July. The rate of decline in July was greater than in June, but the magnitude and duration of the previous run-up in wholesale pricing means that used vehicle values are still at historically high levels. The Manheim Used Vehicle Value Index for July, for example, was 118.9, which represented a 3 percent increase from a year ago. In the first half of August, wholesale values stabilized, which suggests the seasonally adjusted Manheim Index may be slightly up for the month. Click here to view graph depicting Manheim Index.

Pricing for end-of-service fleet units varied by market class. Prices for midsized cars coming out of commercial fleets retreated in both June and July after hitting new records in March, April, and May. The average price received for these units at auction remains well above year-ago levels. For most fleet managers, any easing in price for midsized cars that may have been experienced in July was more than offset by exceptionally strong pricing for pickups and vans.  Many of the pickups coming out of fleets in July had lower-than-normal mileage and attracted strong bidding. Click here to view graph depicting fleet car prices.

Prices for off-rental units continued strong.  The average price for a rental repurchase unit sold by the Detroit 3 hit a new high of more than $22,500 in July. This was the result of low supplies, lower mileage, and a richer mix of models. Rental risk units had an increase in average price for both the month and year-over-year. As expected, the average mileage on a rental risk unit stabilized in July after declining in the first half of the year.

Market class and price tier data reveal strength in selective segments.  In July, as well as for the first seven months of 2010, luxury vehicles have underperformed in the overall market, largely because they are not experiencing the same restricted supplies that exist for the other market classes.  Many SUV models showed weakness in July; but, as a class, the segment is still up substantially year-over-year. Market classes with strength in July included compact cars and full-size pickups. With respect to price tiers, the weakest segment on a year-over-year basis has been vehicles in the $20,000 to $25,000 price range. The two strongest segments were vehicles priced between $6,000 and $7,000 and those priced between $13,000 and $14,000. Click here to view graph depicting price changes by market class.

Tom Webb is chief economist for Manheim Consulting. Contact him at Thomas.webb@manheim.com, follow him via Twitter at www.twitter.com/TomWebb_Manheim and read his blog at www.manheimconsulting.typepad.com.