Kontos Predicts Stable-to-Firming Wholesale Values into 2010

By Joe Overby, Staff Writer
December 15, 2009

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CARMEL, Ind. — During November, wholesale prices were up slightly from October, thanks to gains in retail used-car sales and relatively low auction supply, according to ADESA's Tom Kontos. He also indicated that wholesale prices should continue to show "stable-to-firming" trends in the near future.

Specifically, the average wholesale price in November was $9,519, a 9.3-percent year-over-year gain and a 0.6-percent upswing from the previous month.

"Triggered by an improvement in retail used-vehicle sales and relatively tight supplies, average wholesale used vehicle average prices were up modestly in November versus October," Kontos explained.

"Although auction inventories are rising a bit — mostly from returns of off-rental units that normally occur earlier in the fall — supplies remain tight," he added. "Coupled with improving vehicle demand, this should keep wholesale prices in a stable-to-firming pattern through year-end and into 2010."

And in what could mean potentially goods for both the retail and wholesale sides of the used-vehicles market, the Bureau of Labor indicated that the used vehicle consumer price index was up 2.3 percent year-over-year in October — which is the most up-to-date government data available — and this marked the first year-over-year jump in the index in 16 months, according to Kontos.

He emphasized that this spike could be "an indication that retail used-vehicle demand is strong enough for dealers to pass along the cost of higher priced auction purchases and thereby prevent a gross margin squeeze."

Continuing on to discuss the wholesale market in more detail, Kontos noted that dealers have been more "aggressively" bidding for trucks that they have for cars.

In fact, average prices for trucks were up 15.7 percent from November 2008, while car prices climbed 3.7 percent from a year ago.

Breaking the data down further, prices in manufacturer sales climbed 27.4 percent from the prior year, despite falling 3.1 percent from October.

Fleet/lease prices were up 14.6 percent year-over-year and dipped 1.5 percent from the previous month. Prices in dealer sales were down marginally (0.4 percent) from the prior month but climbed 20.6 percent from the previous year.

Inventory levels were at 37 days at the end of November, compared with 35 days at the end of October, according to ADESA Analytical Services estimates.

Kontos indicated that with solid demand for available units, conversion rates have remained in the "healthy" 60 percent range.

Used Retail Sales Remain Strong

Moving on, the retail side of the used-car market saw a 34.2-percent increase in sales from the prior month, which helped to mute the 41-percent decline in October, Kontos pointed out, citing CNW Research data.

Used sales for franchised dealers climbed 56.4 percent from October, while independents saw a 14.6-percent increase.

Certified pre-owned sales dropped 18.4 percent year-over-year and were off 14.3 percent from October, he added, highlighting statistics from Autodata Corp.

Economy Looks Healthier

As far as macroeconomic conditions, there seems to be some improvement. Unemployment has declined as have job losses, Kontos pointed out.

There were 11,000 jobs lost last month and the year-to-date total has been cut to 159,000, as September and October figures have been downwardly revised.

"Less publicized are recent rises in personal income, which are allowing consumers to increase expenditures on big-ticket items like new and used vehicles," Kontos shared. "This contributed to stronger new vehicle sales in November, with unit volumes reaching a seasonally adjusted annual rate of 10.9 million."

He went on to add that proportionately higher rental and commercial fleet sales drove the gain in the annual sales rate, "which is important in terms of future availability of used vehicles at auction."

Auction/Wholesale