Q2 2017 Finishes Strong

 

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 1.1 percent month-over-month in June.  This brought the Manheim Used Vehicle Value reading to 129.3, which was a record high for the second consecutive month and represented a 2.5 percent increase from a year ago.

On a year-over-year basis, the mid-sized car category saw the largest decline (down 2.1 percent) in June, while pickups and vans saw gains greater than the overall market.

Like May, the June index result challenges concerns that increasing wholesale supplies from near-peak off-lease volumes and rising rental volumes would lead to rapidly declining used car values.  Instead, strong retail demand for recent model year used vehicles is encouraging dealers to buy more vehicles from auction heading into the summer.  The increased demand is more than offsetting the higher supply.

Rental risk pricing eases on higher volume.  The average price for rental risk units sold at auction in June was down 4 percent year-over-year; rental risk prices were up 0.2 percent compared to May.

SUV/CUVs accounted for 32 percent of rental risk sales in June of this year versus 30 percent last June.  The share of compact cars fell from 25 percent to 23 percent.  Average mileage for rental risk units in June (at 40,600 miles) was 2 percent below a year ago.  

 

New vehicle market continues to struggle in 2017.  Franchised dealers have had more than 4 million new units in stock for the last five months. June new vehicle sales volume slipped 3 percent year-over-year over the same number of selling days as June 2016. A majority of the decline can be attributed to slippage in car sales (down 13 percent year-over-year) while light truck sales were positive in June, up 4 percent year-over-year. New vehicle sales year-to-date are down 2 percent compared to last year.

Combined rental, commercial, and government purchases of new vehicles were down 13 percent, due primarily to a sharp decline of new sales into rental (down 22 percent).  Retail sales were down 0.7 percent in June.

 

Used CPO sales softened in June. CPO sales fell slightly in June (-0.8 percent) after increasing substantially in May.  Year-to-date CPO sales are up 1.3 percent.  CPO sales of light trucks jumped 7 percent as increasing SUV/CUV/pickup inventory coming off-lease is lining up well with consumer demand.  The passenger car share of CPO sales came in at 49 percent for June, as SUV/CUV/pickups began to dominate just as they have since 2013 in the new vehicle market.

The U.S. economy remains strong. First-quarter GDP growth was revised up to 1.4 percent from the previous estimate of 1.2 percent.  The second quarter is likely to come in stronger at a level of growth experienced throughout this expansion. Consumer confidence increased in June, snapping two months of declines following March’s 16-year-high reading.  A strong and steady labor market combined with low interest rates enabled strong consumer demand for vehicles in the second quarter, but tempting values on a high-quality supply of used vehicles encouraged many consumers to choose used over new.

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Jonathan Smoke is Chief Economist for Cox Automotive. Follow Jonathan on Twitter at @SmokeonCars for the latest industry research and insights.