Kontos: The Worst May Be Over

By Joe Overby, Staff Writer
January 14, 2009

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CARMEL, Ind. — The worst for the used-vehicle market may already be over, explained Tom Kontos, of ADESA, in his latest commentary.

After analyzing the December and early January marketplace, Kontos said the bottom likely came in late-October and early November, around the time of the election.

The majority of 2008 was certainly a mess for the wholesale industry. But thanks largely to some positive outside developments in the financial and auto retail sectors, some analysts are starting to sing a different tune.

Kontos, for instance, has suggested that current wholesale prices, auction sales volumes, conversion rates and inventory levels point to a healthier wholesale market than the one the industry saw in 2008.

Specifically, average wholesale prices in December were $9,022, up 3.6 percent from the previous month.

And while values dipped 7.4 percent year-over-year, this softening paled in comparison to the 10-percent and 11.3-percent declines in November and October, respectively.

This revitalization may be due to outside economic stimuli, which have started to boost consumer confidence and generate more sales on the retail and wholesale side, Kontos explained.

For example, GMAC recently received bank holding status approval from the federal government, allowing it to tap into TARP funding and broaden its financing capabilities.

Moreover, Kontos pointed out, the Federal Reserve recently decided to include dealer floor-plan financing as part of its federal aid packages.

"Coupled with approval of $17.4 billion of loans to General Motors and Chrysler, this access to capital appears to have brightened the holiday and post-holiday spirits of dealers as a bleak 2008 drew to a close and a more optimistic New Year began," he highlighted.

"Put another way, these developments gave more dealers the confidence and ability to buy vehicles at auction to support what looks to be an improving retail market," Kontos continued.

Breaking the month's wholesale results down by segment, full-size SUVs showed the most improvement in December, climbing 7.8 percent in wholesale value from November.

Conversely, compact cars were only segment that experienced a price drop for the month (down 1.8 percent) as "wholesale prices continue to reset after overcorrections when gas hit $4 in May/June," Kontos pointed out.

Analyzing the results further, vehicles in manufacturer sales were down 9 percent year-over-year, while fleet/lease prices were off 10.9 percent from 2007 and dealer consignment prices dipped 17.5 percent.

"These year-over-year declines were all milder than those in November, and in the case of manufacturer sales, prices were up significantly (3.8 percent) versus prior-month," Kontos pointed out. "This was important for manufacturers who chose to sell their vehicles in December rather than waiting until the New Year."

Sharing more good news for the industry, he also indicated that auction sales volume climbed 5 percent from November, conversion rates jumped above the historical average of 60 percent and the inventory turn rate fell from 73 days to 71 days.

Kontos attributed these gains largely to improved market conditions and realistic price expectations.

"Nevertheless, auction inventory levels remain high and will put continued downward pressure on wholesale prices, especially if sellers revert to overuse of no-sales and thereby add to the inventory pile," Kontos warned.

Moving on to the retail side of the market, used sales climbed 4 percent from November.

Year-over-year, sales were down 9.2 percent, with franchise dealers taking a 6.9-percent hit and independents down 11.9 percent.

However, these declines are modest compared to November's trough.

Moreover, the certified pre-owned industry showed a 14.4-percent year-over-year upswing in December, pushing final 2008 numbers 1 percent above the totals from 2007.

"Fundamentally, retail sales of used vehicles improved — perhaps as value-conscious consumers increasingly look to used vehicles in these tough economic times," Kontos noted.

"In turn, this is driving demand by dealers seeking to supplement low trade-in volumes with the attractive values and selection available in the auction lanes," he concluded

Auction/Wholesale