Cox Automotive chief economist Tom Webb tipped his cap, so to speak, with regard to dealers being able to turn used metal after reviewing how wholesale prices behaved during the opening month of the year.

Manheim reported on Tuesday that wholesale used-vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) slipped slightly in January. That movement brought the Manheim Used Vehicle Value Index to 124.8, a decline of 0.3 percent from a year ago.

“The theme that played throughout 2016 continued into the start of 2017 as wholesale pricing remained stable despite sharply rising supplies,” Webb said in his commentary that accompanied the latest index reading. “Give credit to a retail used-vehicle market that enabled dealers to quickly and profitably sell their auction purchases.”

Webb offered more evidence as to why dealers kept deliveries going.

“After rising by 14.5 million over the past six years, total U.S. employment grew by another 227,000 in January,” Webb said.

“Although January wage growth was a disappointment and the number of people employed part time for economic reasons rose, the stability of the labor market, as represented by a low level of involuntary layoffs and a high level of job openings per job seeker, suggests that consumers will be willing to take on more used-vehicle loans and that lenders will be willing to lend,” he went on to say.

More details about price movements

On a year-over-year basis, Webb pointed out that 2017 started the same as all of 2016 with truck prices moving up and car prices softening.

Manheim reported the upward movement of truck and van prices were the most dramatic of the six categories analysts watch. Truck prices climbed 5.2 percent while van prices rose by 4.3 percent.

And as Webb referenced, prices for compacts and midsize cars softened again in January as Manheim pinpointed the drop-offs at 3.9 percent and 2.6 percent, respectively.

The other two vehicle segments including the monthly update changed little last month as Manheim indicated prices for luxury cars ticked 0.8 percent lower and prices for SUVs/CUVs edged just 0.1 percent higher.

“A cursory look at wholesale pricing by price tier and market segment suggests only a modest impact from the delayed flow of tax refunds this year,” Webb said. “That stands in contrast to the many electronic and furniture retailers who reported that late January sales were negatively affected by the reduced monies.”

How off-rental segment performed   

Manheim determined that rental risk prices remained off by 4 percent from a year ago.

In January, analysts also found that rental-risk prices (adjusted for broad shifts in mix and mileage) were flat relative to December. Last month, Manheim also noticed small and midsize crossovers accounted for 26.4 percent of all rental risk units sold at auction, up from 21.5 percent a year ago.  Meanwhile, small and midsize cars accounted for 45.9 percent of rental risk auction sales this year versus 51.7 percent last year.

Webb mentioned that new-vehicle sales into rental declined by approximately 7 percent in January relative to last year’s “heavily front-loaded purchasing pattern.

“Strong auction volumes in January thus suggest that rental fleet sizes were reduced,” he added.

Reviewing retail sales landscape

Along with that mention of new-vehicle sales into rental fleets, Webb delved deeper into how dealers are moving both new and used vehicles.

“Total used-vehicle sales for January have yet to be released; but channel checks suggest a small single-digit increase year over year,” Webb said, adding that certified pre-owned sales rose a “modest” 0.8 percent as a result of declining CPO car sales by domestic brands “with weak potential margins the likely headwind.”

Webb then noted, “Nevertheless, CPO sales continued to rise faster than new vehicle sales, just as they have done for a little over four years now.”

Based on CarMax results for the segment of its fiscal year from September to November and both AutoNation and Group 1 Automotive results for the fourth quarter, Webb projected that it is likely that the seven publicly traded dealership groups will achieve a gain in same-store used retail unit sales for the 29th time out of the past 30 quarters.

“For some players, gross margins showed signs of stabilizing and turn rates remained good even with a lower wholesaling percentage,” Webb said. “That backdrop suggests a continuing healthy appetite for the growing number of units coming off lease.”

Meanwhile, Webb sees the latest new-vehicle sales performance sending a mixed message.

Webb recapped that new cars and light-duty trucks sold at a seasonally adjusted annual rate (SAAR) of 17.5 million in January. This compares to a pace of 18 million in the fourth quarter and full-year total of 17.5 million for last year.

“After such a strong December, most analysts had expected a larger pullback in January.  Incentives, however, continued to play an outsized role; up 15 percent year-over year, according to Autodata,” Webb said. “Somewhat offsetting that were reduced fleet sales and higher transaction prices as a result of both model mix shifts and higher trim levels.

“The coming impact of new-vehicle inventory overhang is also less than clear,” he continued. “The top-line days’ supply numbers were scary, but less so after accounting for seasonal issues, model shifts, temporary factors, and reduced fleet volumes.  Still, production cuts seem warranted.”