Used-Car Prices

At least 9 elements impacting latest wholesale price movements and June forecast

LAWRENCEVILLE, Ga., and McLEAN, Va. - 

The experts at Black Book and J.D. Power Valuation Services are seeing a wide array of factors ranging the juncture of the calendar to fuel costs to volume in the lanes all impacting their forecasts and most recent wholesale price recaps.

Before looking at what happened at last month as well as last week throughout the auction world, let’s first focus on what the wholesale price expectations are for June.

J.D. Power Valuation Services projected that wholesale prices of vehicles up to 8 years in age are expected to soften by about 0.2 percent. However, when considering full-year expectations, analysts continue to peg wholesale prices ticking up by about 0.8 percent, triggered in part by what they dubbed “exceptionally strong performances” recorded earlier in 2018.

“Negative forecast factors hurting used vehicles continue to be incentives, an anticipated increase in used supply, worsening credit conditions and increasing gasoline prices,” J.D. Power Valuation Services said in its latest issue of Guidelines.

“However, positive factors — such as favorable labor conditions, strengthening housing prices, along with long-term quality improvements — will outweigh the negatives,” analysts continued in the report.

Looking at how analysts arrived that forecast, J.D. Power Valuation Services described the wholesale market turning in a “typical performance” in May.

The J.D. Power Valuations Services’ Seasonally Adjusted Used Vehicle Price remained flat in May when compared to April, sitting at 117.0. That reading settled 3.1 points above the year-ago level and 2.5 points ahead of where the index stood in January.

While the index didn’t shift, analysts determined wholesale prices for vehicles up to 8 years old fell by 1.7 percent in May on a month-over-month basis. The softening was on par for what J.D. Power Valuation Services often spots during this month and actually wasn’t quite as severe as the five-year average, which represented a 2.2-percent drop.

Analysts pointed out that prices for midsize and large trucks went counter to the overall May movement as the former eked out a 0.3-percent price uptick while the latter remained flat.

Prices for large utilities dropped the most in May, according to Guidelines, softening by 3 percent. Not far off that pace were compact utilities (down 1.6 percent) and compact cars (down 2.1 percent).

On the luxury side, J.D. Power Valuation Services noticed large luxury utilities sustained a 4.9-percent price tumble, the most intense monthly drop for the segment since 2008. Analysts mentioned that these units typically hold up well as the 5-year average stood at dip of less than 1 percent.

Prices for luxury compact utilities (down 3.5 percent) and luxury midsize cars (down 3.4 percent) also sustained notable drops in May, according to Guidelines.

Weekly price movement

As they do on a regular basis, the editors at Black Book chimed in with their analysis looking at how wholesale prices moved on a weekly comparison.

This week’s Black Book Market Insights report highlighted that car values in particular showed some of their highest value declines in the last four months, with segments such as Luxury and compact cars leading the way.

Conversely, editors pointed out that the only segment out of all cars and trucks to still show a price increase involved sporty cars.

“As the weather warms up, widespread seasonal declines begin to show in used vehicle values across most segments,” said Anil Goyal, executive vice president of operations at Black Book.

 Volume-weighted, Black Book determined that overall car segment values decreased by 0.38 percent last week. In comparison, the values had decreased on average by 0.20 percent per week during the previous four weeks.

Among car segments, those luxury cars declined by 0.59 percent or $112. Sporty cars edged up by 0.12 percent or $18.

Volume-weighted, Black Book noticed overall truck segment values — including pickups, SUVs, and vans dropped by 0.24 percent last week. In comparison, the values had decreased on average of just 0.09 percent per week during the previous four weeks.

Within truck segments, editors pinpointed that prices for full-Size vans decreased the most last week, sliding by 0.56 percent of $86.

Black Book closed its latest update by sharing some of the best anecdotes from its representatives stationed at roughly 60 sales nationwide. Two of the recaps surfaced out of Illinois.

“Overall, it was a good sale. Full size SUVs continue to drop in value but have slowed down the pace in the last couple of weeks,” one lane watcher in Illinois shared.

The other representative from the Land of Lincoln added: “A new-car dealer who sold 25 here today said that he was pleased with the activity as well as the prices.”

As Goyal referenced, the influence of summer is impacting auction activity, and it was apparent in Michigan where the observer noted, “A normal summer pattern as vehicles with issues sold only if they were floored very low.”

Over in Massachusetts, dealers didn’t dip into their floor plan unless the vehicle met their specifications.

“Nice, clean cars brought good money, but everything else was a challenge in both activity and value,” Black Book representative from Massachusetts said.

Finally, the story out West went this way: “We had a decent sale today, but I had several dealers tell me that prices are inching down in retail,” the lane watcher in Arizona said.


Lane watch: Summertime slowdown starts to appear

LAWRENCEVILLE, Ga. - 

Temperatures are rising nationwide with the first official day of summer coming soon, but prices on certain cars and trucks keep dropping noticeably as auctions and dealers enter the summer months.

However this week’s Black Book Market Insights report indicated a few segments, such as sporty cars and compact vans, have remained strong during the last few weeks.

“The used-vehicle prices are dropping faster as we enter the summer lull with increasing no-sales in the auction lanes,” said Anil Goyal, executive vice president of operations at Black Book.

Volume-weighted, editors determined overall car segment values decreased by 0.24 percent last week. In comparison, the values had softened an average of 0.16 percent per week during the previous four weeks.

Within cars last week, Black Book determined midsize cars declined the most (0.55 percent or $51), while sporty cars increased the most (0.38 percent or $59).

Volume-weighted, editors found overall truck segment values (including pickups, SUVs and vans) dipped by 0.17 percent last week. In comparison, the values had decreased on average by 0.07 percent per week during the previous four weeks.

Among trucks last week, sub-compact luxury crossovers decreased the most (0.60 percent or $103) while compact vans increased the most (0.82 percent or $74).

As Goyal referenced, lane activity is starting to tail off a bit as recounted by Black Book’s representatives stationed at about 60 sales each week.

“Consignment is down as is the dealer attendance and participation at the auction,” the observer in Michigan said. “Thankfully, the Internet buyers continue to be heavily involved in purchasing the auction inventory.”

A similar scene unfolded in Pennsylvania where the Black Book personnel noted, “Dealers are hesitant about overstocking as we move into the vacation season. There were many no-sales in today’s auction.”

And the trend wasn’t confined to auctions west of the Mississippi as Black Book’s lane watcher in California added, “We had a good mix of inventory to choose from today, but the result was still a lot of no-sales.”

The other two anecdotes Black Book shared from its auction watchers reflected other trends often seen this year, including:

— From Indiana: “Retail on the used-car side is good. Nice vehicles remain scarce, especially regarding the truck market.”

— From Washington: “We had a low volume of inventory, and a lot of those were high mileage vehicles resulting in an average or below sale.”

Manheim index hits highest point since November as May used sales wobble

ATLANTA - 

Cox Automotive discovered two trends originating in May that might frustrate some dealerships, especially stores that might have landed a bit short of monthly goals. In May, wholesales prices moved higher as used-vehicle sales softened.

Before used-car managers reach for their stress balls, here are the specifics.

Cox Automotive determined wholesale used-vehicle prices (on a mix-, mileage- and seasonally adjusted basis) increased 1.25 percent month-over-month in May. This rise brought the Manheim Used Vehicle Value Index to 134.2, which marks a 4.9-percent increase from a year ago and the highest level since last November.

Prices for each of the six vehicle segments Cox Automotive tracks for its index update moved higher in May, with vans leading the way via a 10.2-percent climb.

Coming in roughly at half of that upward price pace were compact cars at 5.7 percent SUVs and CUVs at 5.0 percent. Midsize car prices jumped 4.0 percent, and prices for pickups rose by 2.0 percent.

Even luxury cars squeezed in with a 0.2-percent uptick.

Meanwhile, that slightly more expensive used metal didn’t roll over the curb quite as frequently in May.

According to Cox Automotive estimates, used-vehicle sales volume decreased by 1 percent year-over-year in May. However, analysts contend the annualized pace of used-vehicle sales is up 1 percent over last year.

Analysts also estimated the May used SAAR to be 39.7 million, flat on a month-over-month basis.

So what does all of the May data mean? Cox Automotive offered this clarity with the index update.

“Looking at trends in the weekly Manheim Market Report (MMR) prices, the traditional spring bounce this year started three weeks later than it did in 2016 and earlier years and peaked in April in week 15,” analysts said.

“Used-vehicle prices are now moving down but remain higher now compared to where they were at the beginning of the year than any of the last three years,” they continued. “Price comparisons to last year are starting to get tougher as 2017 saw very low depreciation starting in May and lasting throughout the summer.”

One other note about the wholesale market: Cox Automotive also noticed rental risk pricing strengthened.

Analysts indicated the average price for rental risk units sold at auction in May moved up 8 percent year-over-year. But rental risk prices softened 1 percent compared to April.

Cox Automotive added that the average mileage for rental risk units in May (at 43,000 miles) climbed 11 percent above year-ago readings but dipped 1 percent month-over-month.

Turning the page from the used-vehicle space, Cox Automotive also touched on May new-vehicle sales, which increased 5 percent year-over-year, triggered in part by one more selling day compared to May of last year.

Analysts pegged the May SAAR at 16.8 million, up from last year’s 16.7 million. However, the reading broke the streak of eight straight months of new SAAR coming in at or above 17.0 million.

Cox Automotive stated cars continue to see sharp declines as new sales in May fell 9 percent compared to last year. Light trucks outperformed cars in May and were up 14 percent year-over-year.

Combined rental, commercial and government purchases of new vehicles were up 18 percent year-over-year in May, led by increases in commercial (up 2 percent) and rental (up 30 percent) fleet channels, according to Cox Automotive.

“New vehicle inventories came in under 4 million units for the first time in three months, and inventories are at their lowest levels since January,” analysts said.

Cox Automotive closed its Manheim Index report by highlighting how strong economic momentum continues.

Analysts acknowledged the employment report for May was much stronger than expected as job creation increased to 223,000 when experts had expected 190,000. The prior two monthly numbers were also revised up for a net increase of 15,000 more jobs than originally estimated.

Consumer confidence, as measured by the Conference Board, increased in May to 128, the second highest level for the year and the third best level in more than 17 years.

Dealers widening purchase sphere impacts May wholesale price trends

LAWRENCEVILLE, Ga. - 

Dealers expanding their wholesale search parameters to find the clean vehicles that fit their inventory needs impacted both the weekly and monthly wholesale price updates from Black Book.

Taking a look first at the monthly view, Black Book on Tuesday released its Used Vehicle Retention Index for May, describing a 0.8-percent increase during the month to push the latest reading to 112.9. That figure is up slightly from 112.0 in April.

Editors indicated the index has now ticked up 0.6 percent during the past 12 months.

The Black Book Used Vehicle Retention Index is calculated using Black Book’s published wholesale average value on 2- to 6-year-old used vehicles as percent of original typically-equipped MSRP. It is weighted based on registration volume and adjusted for seasonality, vehicle age, mileage, and condition.

Reflecting the strong end to the spring selling season, Black Book pointed out the latest index update contained 15 total segments with positive or unchanged results. Generating the strongest gains were:

— Subcompact cars: up 1.7 percent
— Compact crossover/SUV: up 1.7 percent
— Full-size cars: up 1.2 percent
— Sporty cars: up 1.0 percent

Editors added the Index now has shown a monthly decline in just three of the past 10 months dating back to August.

“The used-vehicle market is clearly benefitting from strong employment and consumer confidence currently, with many segments of both cars and trucks, large and small, seeing valuation strength over the last several months,” said Anil Goyal, executive vice president of operations at Black Book.

“After spring season, we typically see a decline in values in May. However, this year the used market is fairly stable, resulting in an uptick in our seasonally adjusted Index,” Goyal continued.

The index dates back to January 2005 when Black Book published a benchmark index value of 100.0. During 2008, the index dropped by 14.1 percent, while during 2016, the index fell by just 6.4 percent.

During 2011, the index rose strongly from 113.3 to 123.0 by the end of the year as the economy picked up steam and used-vehicle values rose higher. It continued to remain relatively stable, rising slightly until May 2014 when it hit a peak of 128.1.

The entire index report .

Editors share latest via Market Insights

Meanwhile, looking at wholesale movements on shorter time comparison, this week’s Black Book Market Insights report showed car depreciation again accelerating more than trucks, led by three different luxury car segments.

“Wholesale markets show steady depreciation in values while overall consignment levels were reportedly lower last week,” Goyal said.

Volume-weighted, editors calculated overall car segment values decreased by 0.21 percent last week. In comparison, the market values had decreased by 0.10 percent on average during the prior four-week period.

As mentioned within cars, the luxury segments experienced the biggest drops, including:

— Near-luxury cars: down 0.43 percent or $69
— Luxury cars: down 0.40 percent or $77
— Prestige luxury cars: down 0.31 percent or $110

Volume-weighted, editors determined overall truck segment values (including pickups, SUVs and vans) softened by 0.10 percent last week. In comparison, the market values had decreased by 0.04 percent on average during the previous four-week span.

Among trucks, Black Book the luxury crossover/SUV segments performed the worst, including:

— Compact luxury crossover/SUV: down 0.37 percent or $73
— Midsize luxury crossover/SUV: down 0.26 percent or $56
— Full-size luxury crossover/SUV: down 0.26 percent or $86

After recapping the price movements, Black Book turned next to the anecdotes collected by its representatives stationed at about 60 auctions each week. That’s how editors learned about how dealers are on the hunt.

From Tennessee: “Consignment is still running low which is allowing the prices to remain fairly stable. Really nice vehicles are scarce and high,” the lane observer said.

From Pennsylvania: “A dealer stated that he is having to expand his buying area to find enough good, clean vehicles,” another auction watcher added.

Scenes from the Southeast gave further background to what’s happening at sales nowadays.

“Consignment was down. I watched a couple of dealer lanes and it seemed as if they were still trying to fetch the spring price points which resulted in a lot of no-sales,” Black Book’s representative in Georgia said.

Another observer in Florida added, “The sellers are trying to hold their floors on trucks, while luxury cars and older cars didn’t sell well.”

Finally, from up in Michigan, the sale recap went this way: “Dealer consignment and bidding was down this week and prices were on the soft side. Sports cars are doing really well.”

Update on specialty markets

With it being the first week of the month, Black Book also distributed its latest look on how the specialty markets are changing. Here is the rundown:

— Collectibles: Black Book recapped that buyers of the limited production Ford GT coupe were required to keep their vehicle for two years before selling it. Editors mentioned Ford has filed a lawsuit against actor John Cena, and his dealer, for prematurely selling his GT.

— Recreational Vehicles: Black Book noted that RV values at auction were mixed last month, with motorized units “taking a big hit, while towables managed a small gain.” With the exception of February, editors noticed that motor homes have been dropping consistently since last October.

— Powersports: Editors indicated powersports values heading into summer are steady or up modestly for most segments.

— Heavy-duty: Black Book indicated “serious” buyers showed up as Memorial Day weekend approached, while the volume of trucks at the heavy-duty auction venues dropped, helping to stabilize prices.

— Medium-Duty: This past month, editors determined that older Units (from model years 2007 through 2014) dropped an average of $117 or 0.6 percent, which is just $5 more than last month. Black Book added late models reported a positive trend compared to May’s results. Last month, late models (2015-2016) dropped $296, which is a $15 improvement.

2 factors shaping dealer decisions in the lanes

LAWRENCVILLE, Ga. - 

Along with giving a rundown of the latest wholesale price movements, this week’s Black Book Market Insights report gave some perspective on a pair of factors shaping what dealers are buying at auction nowadays and why.

First off, editors noticed continued stabilization of prices for the majority of car and truck segments. Black Book indicated some segments such as sporty cars and sub-compact crossovers continue to see increases, even after the spring selling season.

“The used-vehicle market prices were stable last week after a good spring season this year on mainstream sedans. Sporty cars are experiencing an increase in seasonal demand,” said Anil Goyal, executive vice president of operations at Black Book.

Volume-weighted, editors indicated overall car segment values decreased by 0.09 percent last week. In comparison, the values softened on average of 0.18 percent per week during the previous two weeks.

Within the car segments, Black Book shared the mid-size car segment decreased the most in value last week, declining by 0.35 percent or $34.

Turning to volume-weighted truck data, editors found that overall truck segment values (including pickups, SUVs and vans) ticked 0.05 percent lower last week, similar to the average decrease per week spotted during the previous two weeks.

Among trucks, Black Book pointed out that the sub-compact crossover increased the most in value last week, rising by 0.14 percent or $17.

Beginning the rundown of what Black Book representatives in the lanes noticed last week, the first anecdote originated out of Indiana where an observer said, “Lots of repos, off-lease and rental units, and they all sold well.

“Escalating fuel prices do not appear to be affecting the truck market as of now,” the Indiana lane watcher added.

Black Book mentioned that in some counties in the nation, the average gasoline price is above $4 per gallon.

Editors added the U.S. Energy Information Administration expects U.S. regular gasoline retail prices to reach a summer peak of $2.97 per gallon in June, before falling to $2.86 per gallon in September.

Beyond fuel costs, another lane observer described an additional element shaping what dealers are securing at the auction.

“Buyers are becoming more cautious as they are only buying vehicles to replace a recent retail sale,” Black Book representative in Florida said.

Nearby in Georgia, it was a mix of what’s typically seen in the lanes, as well as an anomaly.

“As usual, the institutional lanes were the best as the dealer lanes started off good but quickly moved to mostly no-sales. Interestingly, the cheaper vehicles were of no interest to the buyers,” the auction watcher in Georgia recounted.

“The final anecdote surfaced out of Colorado where Black Book’s lane watcher said, “Vehicles that are 5 years old or newer are selling the best. Our market is still good.”

April price data reflects auction effectiveness

CARMEL, Ind. - 

Going beyond just the metrics, KAR Auction Services chief economist Tom Kontos explained why the latest wholesale price movements reflect auction successes — especially when it comes to handling off-lease vehicles.

According to ADESA Analytical Services’ monthly analysis of wholesale used-vehicle prices by vehicle model class, values in April averaged $11,116, which represented a 2.7-percent lift compared to March but a 0.2-percent dip relative to April of last year.

Analysts indicated average prices were down on a year-over-year basis for both cars and trucks, but luxury cars and minivans were segments with significant volume that had strong year-over-year price gains.

“Average wholesale used vehicle prices registered their second consecutive year-over-year price decline in April,” Kontos said in his latest installment of the Kontos Kommentary. However, April prices were seasonally strong, despite softer retail demand. 

“Prices appeared to be particularly strong for off-lease vehicles, which is testimony to the effectiveness of upstream sales in preventing oversupply of these units at physical auctions,” he continued.

Kontos also continued his deep dive into trends involving fleet and off-lease vehicles that are 3 years old with less than 45,000 miles on the odometer.

When holding constant for sale type, model-year age, mileage, and model class segment, he found that average prices moved higher on a year-over-year basis for both midsize cars and midsize SUV/CUVs. Midsize car prices climbed 4.0 percent or $465 to $12,180 while prices for midsize SUVs and CUVs rose 4.3 percent or $875 to $21,233.

“This analysis indicates that wholesale values for off-lease units are holding up well despite the overall softening market trend and is evidence of the effectiveness of new remarketing approaches in redistributing supply into various sales channels,” Kontos said.

Drilling deeper into the April data, Kontos went on to note that average wholesale prices for used vehicles remarketed by manufacturers rose 4.6 percent month-over-month and 11.5 percent year-over-year.

Prices for fleet/lease consignors were up 2.3 percent sequentially and up 5.8 percent annually.

And average prices for dealer consignors were up 4.5 percent versus March but down 1.5 percent relative to April of last year.

Kontos closed with data he collected from the National Automobile Dealers Association that showed retail used-vehicle sales by franchised dealers softened 12.6 percent year-over-year and  12.0 percent on the same time comparison for independent dealers.

Kontos added that April certified pre-owned sales were down 14.6 percent from the prior month and down 5.8 percent year-over-year, according to figures from Autodata Corp.

“It should be noted that both the NADA and Autodata sales numbers are based on fewer selling days in April, which tends to overstate the declines,” Kontos said. “On a year-to-date basis, CPO sales are up 1.5 percent versus last year.”               

Kontos elaborated about the market in a video and at the top of this page.

ADESA Wholesale Used-Vehicle Price Trends

   Average  Price  ($/Unit)  Latest  Month Versus
   April 2018  March 2018  April 2017  Prior Month  Prior Year
           
 Total All Vehicles  $11,116  $10,824  $11,141  2.7%  -0.2%
           
 Total Cars  $8,778  $8,595  $8,968  2.1%  -2.1%
 Compact Car  $6,562  $6,611  $6,805  -0.7%  -3.6%
 Midsize Car  $7,701  $7,591  $7,962  1.5%  -3.3%
 Full-size Car  $7,553  $7,274  $8,504  6.6%  -8.8%
 Luxury Car  $13,474  $13,088  $13,317  2.9%  1.2%
 Sporty Car  $14,625  $14,194  $14,694  3.0%  -0.5%
           
 Total Trucks  $13,139  $12,779  $13,187  2.8%  -0.4%
 Minivan  $9,901  $9,876  $9,060  0.2%  9.3%
 Full-size Van  $13,807  $13,195  $13,005  4.6%  6.2%
 Compact SUV/CUV  $11,096  $10,777  $11,083  3.0%  0.1%
 Midsize SUV/CUV  $11,425  $11,031  $11,773  3.6%  -3.0%
 Full-size SUV/CUV  $13,878  $13,379  $14,085  3.7%  -1.5%
 Luxury SUV/CUV  $18,645  $18,290  $19,055  1.9%  -2.2%
 Compact Pickup  $9,407  $8,905  $9,326  5.6%  0.9%
 Full-size Pickup  $16,137  $15,707  $16,520  2.7%  -2.3%

Source: ADESA Analytical Services.

Moody's Analytics: The non-impact of off-lease volume on supply and price

NEW YORK - 

An assessment of supply is critical to understanding future residual price trends, though difficult to calculate. Our aim here is to help readers better understand the drivers of used-vehicle supply in the U.S.

In 2015, about 17.5 million new cars and trucks were sold in the U.S. Let’s assume that all of these vehicles were 2015 model year and that such vehicles are not sold in adjacent years. In the future, this cohort of 2015 vehicles will be traded in and repoed, bought from used car dealers, exchanged privately, totaled by insurance companies, driven into the ground, repaired, stripped for parts and ultimately scrapped. Some 2015 model year vehicles will be exported to other countries, while a much smaller number of foreign vehicles will be imported. 

What we know for a fact is that 2015 vehicles will never again be produced. The stock of such autos can and will decline in future, but it can never increase.

There are actually only three ways to increase the supply of 3-year-old cars in the U.S. First: produce an extra new car today and then wait for three years. Second: import an appropriately aged used vehicle from overseas. Third: rescue a vehicle that, for whatever reason, had been removed from the current cohort of 3-year-old vehicles.

The first of these is the main driver of used vehicle supply. We find, quite reliably after controlling for demand-side ructions, that declines in used car prices lag increases in new vehicle sales by between 18 months and two years. 

In terms of used vehicle exports, data are somewhat spotty, but reveal that in 2013 about 800,000 used vehicles were transferred abroad. Used cars and trucks typically flow from richer countries to poorer countries so apart from the odd vintage car enthusiast bringing home a beloved 1964 Porsche 911, we can surmise that vehicle exports exceed imports by a healthy margin. One can imagine that exports are impacted by domestic prices, rising when U.S. prices are suppressed and falling when local prices are relatively high. 

The third supply driver — the rate at which older vehicles are retired — is perhaps the most interesting of the three. We know from the Cuban experience that when new vehicle production or imports are severely curtailed, the value attached to older vehicles rises apparently without limit. In the U.S., the supply dynamics are less stark but people still make supply decisions when determining, for example, whether to repair the blown head gasket on their 1998 F-150 or buy a different car. Cars are often retired when they still have many years of safe motoring ahead of them. People may even retire perfectly good cars just because they like the features offered on newer models. If the propensity to retire vehicles ever rises, this represents a supply contraction that will potentially impact used vehicle prices.

Just as important is a consideration of the things that do not increase the supply of used cars. If, for example, my neighbor offers to buy my three-year-old hatchback and I agree to sell it, there is no change in either the demand or supply position of the market. Yesterday I was consuming the vehicle and my neighbor was catching the bus to work; today our roles are reversed.  

The next question we must address is whether these dynamics change if a dealer acts as a middleman to the transaction between myself and my neighbor. While the dealership is providing an indispensable retail service by matching my needs with those of my neighbor, the only way a used car dealer can impact supply is by opting to send a vehicle in their possession off to the salvage yard.

There is no doubt that dealer inventories can rise if there are too many sellers and not enough buyers. This issue is currently a major concern because of the flood of off-lease vehicles that have been present in the industry over the past few years. The critical thing to keep in mind is that the total number of 2015 vehicles in circulation in the U.S. is unaffected by the nature of their original financing arrangements. For off-lease volume to be a genuine problem we would need the demand for clocking miles in three-year-old cars to decline relative to the normal level. There is no evidence that this phenomenon has recently occurred.

So what explains the declines we have witnessed in used car prices over the past few years? For one thing, prices entered this period at an aggregate level that was well above trend. This occurred because new vehicle sales fell by half during the Great Recession — causing supply to contract — and only slowly recovered in the years immediately afterward. The paucity of 2008 model year vehicles is a market feature that is still in evidence today. 

New vehicle production and sales then increased at a steady clip in recent years, causing prices to fall back toward trend levels. Americans have also shown an increased propensity to keep older cars in operation for longer and this has also helped to boost available supply.

Trading used cars among ourselves is great for generating retail service fees for dealers but it has no bearing on vehicle supply. When analyzing possible implications for residual prices, market participants would be wise to ask whether a particular event adds to or subtracts from the size of the vehicle fleet. 

It is only these events that can influence vehicle supply, and therefore vehicle prices. 

Tony Hughes is a managing director at Moody’s Analytics, where he leads the development of used-car price forecasts.

Lane watch: Truck prices stabilize

LAWRENCEVILLE, Ga. - 

While an auction general manager in Texas shared short-term expectations for what might be happening in the lanes, the newest Black Book Market Insights report also highlighted a noteworthy development that just occurred.

Editors determined truck values stabilized last week following several weeks of volatility, while cars saw higher demand at auction.

“Sedans drop in value, but sporty cars see a seasonal increase with summer around the corner. Luxury cars and crossovers experience a larger decline,” said Anil Goyal, executive vice president of operations at Black Book.

Volume-weighted, editors indicated overall car segment values decreased by 0.27 percent last week. In comparison, values had increased on average by 0.12 percent per week during the previous four weeks.

Within cars, Black Book noticed the sporty car segment increased the most in value last week, rising by 0.18 percent.

Again volume-weighted, editors noticed overall truck segment values (including pickups, SUVs, and vans) decreased by just 0.05 percent last week, same as the average drop per week in the previous four weeks.

Among trucks, Black Book said the sub-compact crossover segment increased the most in value last week, moving 0.22 percent higher.

Turning next to what Black Book’s representatives captured at sales nationwide, one lane watcher caught up with a general manager of an auction in Texas.

“The nicer, more expensive vehicles have softened here. Our market feels like it has another month or so before we see increased volatility across the board,” the GM said.

The scene at a couple of locations revealed how the hammer isn’t falling with as much frequency as it did during the height of the spring market.

Out of Georgia: “There was an abundance of no-sales in both the rental/lease lanes as well as the dealer lanes. In addition, the less expensive older vehicles that sold well recently experienced sporadic sales.”

Out of Michigan: “Consignment is down, but anything nice sells and for good money. Retail remains good but certainly not great.”

And speaking of retail, what’s occurring in Tennessee is perhaps a reflection of dealership activity.

“Sub-compact and units under $10,000 are in demand. The higher priced vehicles are much harder to turn,” the lane watcher in the Volunteer State said.

Finally, the report out of Pennsylvania might have given another glimpse of what prices at the pump are doing to dealer buying activity at the auction.

“A dealer out of New York who typically buys trucks stated that he is purchasing more passenger cars than he can remember,” the Black Book representative said.

Spring market recap: 4 notable price increases and pump price movement

CARY, N.C. - 

With spring unofficially ending with Memorial Day weekend just ahead, Black Book and J.D. Power Valuation Services took in-depth looks at what happened in the lanes during the spring market and a few general economic trends that unfolded.

Edmunds also considered the ongoing challenge automakers face trying to retail green vehicles.

Black Book acknowledged that spring is typically viewed as a strong season for dealers since many people receive their tax rebate checks and immediately use them to purchase a used car or truck. This past spring season — which editors considered to take place between Feb. 1 and May 1 — four mainstream car segments increased on average by 3.0 percent. That group included:

— Sub-compact car: up 2.6 percent

— Compact car: up 5.3 percent

— Midsize car: up 3.1 percent

— Full-size car: up 1.0 percent

For the prior year, editors recollected the spring seasonality lift in values see was slight. During the same months in 2017, Black Book indicated the values on these car segments was almost flat, increasing by just 0.3 percent.

During the same period of 2016, Black Book mentioned only one of these car segments increased in value. Overall, values declined by 0.9 percent on average across the four segments.

“I believe what we’re seeing is a handful of factors coming together this spring season that has brought us to a strengthening of the used market for mainstream car segments,” said Anil Goyal, executive vice president of operations at Black Book.

“With lower demand, these sedan segments dropped in value for used vehicles, entering 2018 where their prices reached a point of attractive value for many shoppers,” Goyal continued. “Second, much of the excess used supply was absorbed in late 2017 due to replacement demand caused by the hurricanes.

“Third, the additional money due to the tax reform has helped with vehicle affordability. Fourth, the economy continues to hum along with consumer confidence reaching its highest point in 17 years,” he went on to say. “Lastly, with gas prices on the rise, there are a few more shoppers looking at mainstream sedans with fuel economy in mind."

More analysis of the economy and gas prices

The spring edition of Perspective generated by the J.D. Power Valuation Services picked up on Goyal’s thoughts and took an expanded look at recent economic activity and where prices at the pump might be going.

J.D. Power Valuation Services recapped that the U.S. Bureau of Economic Analysis (BEA) revised estimates of Q4 GDP growth. The estimate lifted from 2.5 percent to an annual rate of 2.9 percent.

Analysts explained the primary causes for growth have remained consistent over the past several months: personal consumer expenditure, nonresidential fixed investments, exports and federal government spending.

The BEA also indicated real GDP grew by an annual average of 2.6 percent in 2017, a marked increased from 1.8 percent growth during 2016. The BEA expects a similar growth trend as analysis evolves into 2018.

Meanwhile, J.D. Power Valuation Services pointed out that the unemployment rate remained unchanged at 4.1 percent in March as employment grew in manufacturing, health care, mining, and professional and business services. Report authors noted that the March 2018 U6 unemployment rate — which measures discouraged, part-time, or underemployed workers in the economy — sits at 8 percent, which is slightly down from 8.2 percent in February.

The recap in Perspective also said non-farm employment increased by 103,000 jobs in March with most jobs coming from manufacturing, health care and mining. This was a marginal increase in job growth, following February’s growth of 326,000 jobs.

Furthermore, J.D. Power Valuation Services recapped that wage growth continued to stall in February with real average hourly earnings for all employees increasing by 0.2 percent. Hourly wages in nonfarm payrolls went from $26.71 to $26.75, and average weekly earnings increased by $4.06 from $918.82 to $922.88.

“This marginal increase in wage growth continues the trend of relatively flat growth trending into 2018,” analysts said.

So how might consumers use that money to make a vehicle purchase and keep the engine running?

J.D. Power Valuation Services recapped that energy prices remained relatively flat in the months of February and March as global demand remained flat.

“Seasonal expectations counteracted any downward pressure on fuel prices from an excess supply of fuel the past month,” analysts said.

U.S. gas prices remained the same in March ($2.59 per gallon) as they were in February. The year-over-year increase in gas prices was approximately $0.26 per gallon (9.8 percent) higher than 2017.

Experts debate whether the current uptick in global demand for oil will taper off (which would lead to depressed prices), or if gas prices will marginally increase as demand remains constant,” analysts added.

Fuel-efficient vehicles going forward

Earlier this month, leaders of several automakers met with President Trump to discuss fuel-efficiency standards among an array of topics.

If gas prices continue to rise, perhaps demand for green vehicles will grow. For now, Edmunds indicated that sales of green vehicles (hybrids, plug-in hybrids and electric vehicles) in both Q1 as well as from January through April accounted for just 3.2 percent of new-model turns.

Jeremy Acevedo, manager of industry analysis at Edmunds, explained the conundrum OEMs now face.

“The automakers are finding themselves in a political quagmire of their own making. Companies are always going to push for what's best for their bottom line, and at this point, a compromise with California to maintain a single standard makes the best business sense,” said Acevedo, who also noted that 13 percent of all new vehicles sold in Q1 rolled over the curb at franchised dealerships in the Golden State.

“While it seems as though the automakers are somewhat unified in their approach, each company (went) into this meeting with their own agenda of how much they’re willing to concede...or not,” he continued.

“While Ford and GM have stated publicly they support continuous improvements in fuel economy, they’re unlikely to say no to laxer fuel efficiency rules given the flexibility it provides to play up to the strong consumer demand for trucks and SUVs,” Acevedo went on to say.

“But if the pendulum swings too far backward, there may be dissent from automakers that already have a robust green portfolio and are poised to be at a competitive advantage should stricter standards hold,” he added.

May wholesale price forecast improves versus a year ago

McLEAN, Va. - 

While analysts noticed April’s wholesale price movements went in a direction not seen during that particular month in seven years, the team at J.D. Power Valuation Services is projecting the change in May prices won’t be as dramatic as seen a year ago.

According to the latest installment of Guidelines, J.D. Power Valuation Services is expecting wholesale prices for vehicles up to 8 years in age to decline by about 0.2 percent in May. That’s only a fraction of what analysts recorded in May of last year when prices decreased by 1.7 percent.

The report indicated there are a variety of environmental factors in play that could help or hinder used-vehicle sales; thus, impacting wholesale prices.

“Negative forecast factors hurting used vehicles continue to be incentives, an anticipated increase in used supply, worsening credit conditions and increasing gasoline prices,” analysts said.

“However, positive factors such as favorable labor conditions, strengthening housing prices along with long-term quality improvements will outweigh the negatives,” analysts went on to say.

April pricing recap

With prices remaining stronger than anticipated, April represented the second-highest upward move of the J.D. Power Valuation Services Seasonally Adjusted Used Vehicle Price Index recorded so far this year.

The reading climbed 1 point higher to 117.1, leaving the index 3.4 points above what J.D. Power Valuations Services posted in April of last year.

What pushed the reading was an increase of 0.2 percent in vehicle prices for units up to 8 years in age. Analysts said in Guidelines that April’s behavior was “atypical” since it was the best performance for that specific month since 2011.

“Looking back, we’ve observed the development of a trend that began in 2014,” analysts said in the report. “It seems that prices have been stronger year-over-year for the April period.

“This can be attributed toward an extended spring rebound in used-vehicle prices that we traditionally see during the first quarter of the year,” they added.

Looking at price moves at the segment level, J.D. Power Valuation Services noticed that mainstream segments performed “very well” in April with the exception of large utilities, which softened by 1.3 percent. Prices for large utilities now have dipped for four consecutive months.

What’s triggered the decline, according to Guidelines, is the steady rise in auction volume for these particular models. Analysts pegged the year-over-year volume jump in April for large utilities at 33.2 percent and the year-to-date rise at 31.4 percent.

Enjoying price increases slightly above the overall April figure were midsize cars and large pickups, which both experienced a 0.6-percent uptick, according to J.D. Power Valuation Services.

Switching to luxury vehicles, analysts pointed out the pricing bright spot stemmed from luxury compact utilities climbing by 0.7 percent. Otherwise, “luxury segments didn’t fare as well as their mainstream counterparts.”

The recap in Guidelines showed that the luxury segment sustaining the most dramatic price decline in April included luxury large cars, which dropped by 5.7 percent.

“However, it’s important to remember overall volume of this segment is extremely small,” analysts said. “In fact, it’s the smallest of all the segments we examine.

“As a result, any material decline in individual model wholesale prices is extremely amplified,” they added.

To reinforce the point, J.D. Power Valuation Services cited the April price drop-offs of the 2013 and 2014 Lincoln MKS. Auction prices for these vehicles plummeted by 26 percent and 19 percent, respectively.

For more analysis from J.D. Power Valuation Services, see the podcast below with Jonathan Banks, the company’s vice president of vehicle analysis and analytics, recorded at NADA Show 2018 earlier this year. 

 

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