Wholesale Vehicle Prices Continue To Come Down

By Jonathan Smoke
Cox Automotive
 

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 1.91 percent month-over-month in December. This brought the Manheim Used Vehicle Value Index to 132.0, which was a 5.6 percent increase from a year ago, and the lowest level since August.

On a year-over-year basis, all major market segments except midsize cars saw gains. SUVs/CUVs, pickups, and vans outperformed the overall market.

Though wholesale market values saw strength in the spring and summer as a result of growing retail demand, most of the gains since August were a result of the replacement demand following Hurricane Harvey and Hurricane Irma. As has been the case with prior devastating storms, used vehicle prices are now returning to pre-storm levels. Underlying vehicle depreciation rates have been accelerating to catch up to where prices would have been without the abnormal demand and scarce supply in September and October.

Rental risk pricing weakens. The average price for rental risk units sold at auction in December was up 0.3 percent year-over-year. Rental risk prices were down two percent compared to November. Average mileage for rental risk units in December (at 49,700 miles) was 15 percent above a year ago.

New vehicle sales slip in December. December new sales volume decreased five percent year-over-year with one less selling day compared to December 2016. December seasonally adjusted annual rate (SAAR) came in at 17.8 million, the fourth straight month of over 17 million SAAR and the longest streak of 2017. December was a tough comparison since December 2016 SAAR was 18.1 million, the best December in history. Cars continue to see sharp declines as sales in December fell over 17 percent compared to last year, with all major car segments having sales declines. Light trucks outperformed cars in December and were up two percent year-over-year.

New vehicle sales for full year 2017 were down two percent compared to 2016. At 17.1 million units for the year, annual new vehicle sales slipped for the first time in seven years.

Combined rental, commercial, and government purchases of new vehicles were down five percent year-over-year in December, led by declines in commercial (-six percent) and rental (-five percent) fleet channels. Overall fleet sales were down eight percent for 2017 versus 2016.

New vehicle inventories remained below four million units, as December stock came in at the lowest level in 2017 and one of the lowest monthly levels in the past 24 months.

Used sales increase in December. According to Cox Automotive estimates, used car sales increased by four percent year-over-year in December. The December used SAAR increased to 38.9 million units. At 39 million units for 2017, used vehicle sales grew one percent versus 2016.

Economy showing strong momentum. The final reading on third-quarter real GDP growth came in at 3.2 percent. A strong stock market, high consumer confidence, and low unemployment are major factors for continued economic growth in 2018. The tax reform’s positive impact on most households’ take-home pay should reinforce consumer spending and help offset the impact of higher interest rates on vehicle loans. Both used and new vehicle sales should end up incrementally higher in 2018 relative to what they would have been without tax reform.

Expect pricing weakness for next few months. Depreciation has accelerated for most vehicles to catch up with the abnormal pricing performance in September and October. This will likely continue through January as the Manheim Index should trend closer to its value prior to the hurricanes. As we look ahead in 2018, we will likely miss the normal “bounce” in used vehicle prices in March as tax refunds will again be delayed as part of the IRS effort to combat identity fraud. Prices should be on firmer footing by April as retail demand kicks into gear.

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