The unusual summertime wholesale price movements seen by both KAR Auction Services and J.D. Power Valuation Services might push the costs that dealers face in the lanes nearly 3 percent higher by the time the year ends.
The August price updates from both companies conveyed notable wholesale price surges, with KAR chief economist Tom Kontos calling the situation in an online video that accompanied his analysis, “a perfect storm for the used-car market in August as retail sales and wholesale values were both strong.”
He added in his latest Kontos Kommentary that, “Retail demand and upstream remarketing were key contributors to wholesale used vehicle price growth in August, as prices were up on a month-over-month and year-over-year basis.”
According to ADESA Analytical Services’ monthly analysis of wholesale used-vehicle prices by vehicle model class, wholesale values in August averaged $11,049, which marked a 1.4-percent rise compared to July and a 0.9-percent lift relative to August of last year.
Kontos said car prices in total went up 2.2 percent month-over-month, while truck prices rose 1.0 percent, “indicating that car segments are now in better supply-demand balance.”
Meanwhile the team at J.D. Power Valuation Services shared that August prices “ended the month even stronger than expected.”
The J.D. Power Valuation Services’ Seasonally Adjusted Used Vehicle Price Index increased 2.2 points on a sequential basis to land at 121.9. The reading also jumped 6.3 points year-over-year.
The August index rise represented an increase for the third consecutive month, leaving the reading at the highest level since late 2015.
“The used-vehicle market starting showing its strength in the middle half of 2017, and there are no signs of it letting up,” analysts said in Guidelines. “Most of the market’s left in prices has been driven by mainstream car growth, however, mainstream utility segments continue to show firmness as well.”
J.D. Power Valuation Services elaborated about August car performance, noting that small-car prices rose 2 percent and prices for midsize cars ticked up by 1.5 percent.
Jonathan Banks, the company’s vice president of vehicle analysis and analytics, detailed what’s happening outside of the lanes that’s impacting car prices during a phone conversation with AuSM earlier this month
“Incentive spending is still a bit higher than what you would like to see. The car segments are still a little misaligned, but it’s getting a lot better. It was nice to see what Honda did with the Accord when sales didn’t meet their expected demand. You expect that from Honda,” said Banks, who along with Kontos are among the collection of experts on tap for , the series of industry-leading conferences that begin on Nov. 12 in Scottsdale, Ariz.
“I think we’ve reached the point where if manufacturers keep production in line with the sales we’ve been seeing the past three or four months, I think they’re pretty close, we’re seeing that people still want cars,” Banks continued. “But I think pulling back in production was the right thing to do. You would like to see incentives around 10 percent for cars, but we’re not quite there yet.”
While mainstream car prices are helping to push overall figures higher, J.D. Power Valuation Services explained why the same situation cannot be said about luxury vehicles. Again from the latest installment of Guidelines, analysts pointed to higher incentive spending as the headwind.
Turning back to Kontos and the August information from KAR, he indicated average wholesale prices for used vehicles remarketed by manufacturers rose 3.2 percent month-over-month and 2.0 percent year-over-year.
Kontos noted prices for fleet/lease consignors were up 1.5 percent sequentially and up 8.2 percent annually.
He added that average prices for dealer consignors ticked up 1.9 percent versus July and 0.6 percent compared to August of last year.
And with regard to the other ingredient for that “perfect storm,” Kontos cited data from the National Independent Automobile Dealers Association that showed retail used vehicle sales by franchised dealers increased 4.5 percent year-over-year in August.
The rise for independent dealers was even more robust as Kontos put the year-over-year jump at 9.8 percent.
Kontos went on to mention figures from Autodata, Corp. that revealed August certified pre-owned sales 4.9 percent from the prior month and 1.8 percent year-over-year. According to Autodata, on a year-to-date basis, CPO sales are up 2.5 percent versus last year.
So with all of that activity in mind, J.D. Power Valuation Services sees wholesale prices rising by 2.9 percent by the end of 2018. Analysts acknowledged the climb might not be that much if negative price factors such as incentives, rising supply, worsening credit conditions and a jump in gas prices play bigger roles. However, they think positive factors — favorable labor conditions, strengthening housing prices and long-term quality improvements — outweigh negatives.
“There are two primary factors why the used market continues to heat up,” analysts said in Guidelines. “First, dealers are placing more emphasis on used-vehicle operations, and second, vehicle affordability is becoming increasingly important to consumers.”
Senior editor Joe Overby contributed to this report.
|July 2018||June 2018||July 2017||Prior Month||Prior Year|
|Total All Vehicles||$10,902||$10,895||$10,887||0.1%||0.1%|
Source: ADESA Analytical Services.