Fleet Prices Bounce Back From Temporary Lull As Overall Market Stays Strong

The year ended on a good note for fleet managers, as December pricing for end-of-service midsize fleet cars continued to rebound from what now appears to have been temporary weakness in October. There was the normal seasonal decline in the number of full-size vans and pickups coming out of fleets in December, but adjusted prices were up modestly.

Manheim Index Rises Again in December

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) rose 1.1 percent in December, which resulted in a year-over-year gain of 0.6 percent. The Manheim Used Vehicle Value Index stood at 125.1 for December, and the annual average for all of 2011 was 124.9, which represented a 3.7 percent increase from 2010.

Support for wholesale used vehicle values has been provided by improving retail demand (in both the new and used vehicle markets) and by the ongoing reduction in available wholesale supplies. The importance of the retail demand component was evident in the fourth quarter, as wholesale supplies began to rise for vehicles of particular makes, ages, and price points, but without any adverse impact on pricing. We also saw wholesale prices continuing to rise in the first half of January.

December new vehicle sales show strength. New cars and light-duty trucks sold at a seasonally adjusted annual rate of just under 13.6 million in December. The full year total came in at 12.8 million, and the pattern during the year clearly showed the impact of the supply disruptions resulting from Japan’s earthquake. The seasonally adjusted annual selling rate was 13.1 million during the first four months of the year, and it was 13.4 during the final four months. It was the middle four months, with a pace of only 11.9 million, that kept the full year tally from exceeding thirteen million.

The increase in new vehicle sales in 2011 was not driven by sales into fleet (retail deliveries rose twelve percent, while fleet sales were up only three percent) or by heavy incentives (in fact, industry-wide incentive spending was down for the year, and net new vehicle transaction prices were up substantially for the second consecutive year). This pricing discipline, which was enabled by industry restructurings and strong new product offerings, played a major role in boosting used vehicle residuals in 2011.

Used vehicle retail sales also finish the year strong. It was a good year for used vehicle sales in 2011. Sales rose five percent, and the ratio of total used vehicle sales to new vehicle sales remained high at more than 3-to-1 for the third consecutive year. Manufacturer-certified pre-owned sales reached a record of more than 1.7 million units, and dealers of all types enjoyed faster inventory turns and more retail financing options for their customers.

Off-rental units continued to command strong prices at auction. The average auction price for rental risk units was basically a flat line from March through December. And it was a flat line at record levels. That steady performance reflects the strength of underlying retail demand, since the percentage change in the number of units offered each month varied from double-digit declines in the first half of the year to double-digit increases in the fourth quarter.

Price movements by market class. Auction prices for luxury vehicles weakened in the fourth quarter as some manufacturers in that segment pushed year-end promotions. Sports cars, meanwhile, enjoyed a significant lift in pricing in December. It was a rise that came well ahead of its normal spring rebound.

For the year – indeed for the past two years – it continued to be compact and midsize cars that posted the largest price increases in the wholesale market. Mark this up to strong product offerings in the new vehicle market and to what are likely to be long-term shifts in customer demand.

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.

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