Webb: '07 Looks Positive for Wholesale, Retail Markets

By Richard Greene, AR NewsMagazine Editor
January 08, 2007

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ATLANTA, Ga. - Characterizing the overall wholesale pricing environment in 2006 as "solid" and the retail used vehicles sales environment as "stable," Manheim's chief economist Tom Webb predicted Monday favorable conditions for the wholesale and retail used vehicle market in 2007.

At the same time, Webb forecasted that auction volumes within the National Auto Auction Association should again increase this year, as they did slightly in 2006.

Also during the quarterly conference call, Bill Tiedemann, vice president and general manager of Manheim's Total Resource Auctions, wished both ADESA and Insurance Auto Auctions well in their impending merger, and quickly added that he believed there is still room for viable competition within the highly competitive salvage arena.

Wholesale Market Evaluation

"Generally speaking, I would describe the wholesale-pricing environment as solid, driven by such fundamentals as a healthy retail environment for used vehicles, a continued reduction in that excessive new-vehicle inventory overhang and a very favorable credit environment for used-vehicle loans," Webb noted.

These conditions helped spur the Manheim Used Vehicle Value Index to register its third consecutive increase in December 2006, he added. Currently it stands at 113.5, representing a seasonally adjusted gain of 0.5 percent for the month, but a year-over-year decline of 2.2 percent compared with December 2005.

However, Webb said the index rose 1.6 percent for the year in 2006. "Wholesale prices started 2006 at a cyclical high, so even though the index declined during much of the year, the annual average wholesale price for 2006 was 1.6 percent higher than 2005," he explained.

"A review of the economic landscape and industry factors suggest a continuation of solid remarketing performance in early 2007," Webb continued.

This should include a "slight increase" in auction volume by NAAA-member auctions, he said. Webb also pointed out that auction volumes rose 1.8 percent in 2006 to an estimated 9.57 million units after a two-year decline. "I would say we'll see an increase in 2007 similar to what we had last year," Webb projected.

Retail Market Assessment

Regarding the retail side of the used-car marketplace, Webb said sales volumes were "fairly stable" throughout 2006. He cited CNW's recently released figures showing that about 42.5 million used vehicles were retailed last year.

Webb identified several "pockets of strength" that contributed to this positive sales environment and helped boost departmental profitability, especially at franchised dealerships and among most of the publicly traded dealership groups.

"In December, consumer confidence increased to 109, its second highest level since May of 2002," Webb said. "Even more noteworthy, consumer confidence measures remained in a very narrow band throughout 2006, despite the ups and downs of gasoline prices and a substantial correction in the housing market."

At the same time, Webb said even with a slight rise at year-end in jobless claims, they remained "near a cyclical trough." In addition, Webb noted that total personal income rose at a 5.9 percent annual rate in 2006, and the more narrow wages and salaries component jumped 6.3 percent.

"All of this led to a stable retail used vehicle market," he said.

Webb pointed to several 2006 highlights. These included: (1) projected record sales of certified vehicles at franchised dealerships once all final December numbers are reported; (2) CarMax's posting of "stellar" financial results and a 13 percent increase in same-store used unit sales for its quarter ending in November; and (3) "good numbers" from the other publicly traded dealership groups when they report full-year results in late January and early February.

"And don't forget to add in less direct competition from the new-vehicle market," Webb noted. "Total new-vehicle inventories continued to fall in December (relative to a year ago), despite relatively soft sales."

According to National Auto Dealers Association's chief economist, Paul Taylor, light vehicle new-vehicle sales ended 2006 at just over 16.5 million units, compared with north of 16.9 million vehicles in 2005. "This is a decline of 2.6 percent, versus the 1.3 percent drop that NADA expected at the beginning of the year," Taylor said last week in the association's daily e-newsletter.

"Production schedules for the first quarter of 2007 are commensurate with the expected easing in new unit sales volumes," Webb noted. "Couple that with fewer program car sales to the daily rental companies and an expected reduction in current and previous model-year vehicles available at auction, and it suggests that late-model used vehicles will continue to demand top dollar."

During the conference call, Webb described 2006 as a "tough environment" but expressed satisfaction that "it did very well and normally does when you have an economy which is producing jobs and you have people willing to lend money."

Webb concluded, "Year in and year out, the used-vehicle market is very, very stable. As far as 2007, it seems to me that the conditions remain favorable."

Remarks Regarding ADESA, IAA Merger

Following Webb's remarks during the conference call, several questions were posed to Tiedemann about Manheim's salvage operation called Total Resource Auctions. He said TRA's network of salvage wholesale auctions has expanded to 32 locations nationwide and he expects that figure to increase. "There's no ceiling on the number," he said.

Tiedemann also projected that overall market unit numbers will jump significantly this year. "Our expectations for growth are fairly aggressive, certainly in double digits in 2007," he said.

Then when asked about the competitive market impact of ADESA's announcement that it has entered into a definitive merger agreement to be acquired by a group of private equity firms and that IAA will be joining ADESA following the announcement, Tiedemann commented, "I think this is an example of the changing times. There is more deal making these days in the wholesale auction world than there used to be."

Tiedemann continued, "We wish both ADESA and Insurance Auto Auctions the best in joining forces. We think that our ability to deliver the best technology and the best customer service in the market place is what we are focused on, not what the others are doing."

But then he didn't hesitate to add, "I think there is still plenty of room for competition even with the new Kelso Company as well as Copart."