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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