WATERLOO, N.Y. -

It used to be that Joel Osserman only needed three wholesale buyers to scour auctions and pull in the necessary used units for his Waterloo, N.Y., dealership.

Now, with auction prices so high these days, the president of Select EuroCars said he has 17 buyers throughout 13 states just to find the right three to five cars per week.

“It’s so sporadic,” Osserman told Auto Remarketing on Tuesday.

He said there may be a string of two to five days “where prices are through the roof,” and then there will be an instance like the one that occurred late in the week before Labor Day weekend.

Just before that holiday weekend, prices dipped, so Osserman snatched up more than a handful of vehicles at auction.

“Yet, (on Monday of this week), we were bidding on just a couple of units, and they were 40-percent higher than we’d ever seen them,” he noted.

Though not all dealers and wholesale analysts Auto Remarketing spoke with agreed that the market is volatile, Osserman was not alone.

For example, Jim Smail — president of the Smail Auto Group in Greensburg, Pa., and chairman of the American International Automobile Dealers Association — has experienced much of the same ups-and-downs in auction prices that Osserman has seen.

While his preferred method of used-vehicle sourcing is through retail trade-ins and lease returns, Smail has two people on the road buying vehicles and two other people selling.

“My take on it is that it’s very volatile right now. It’s kind of like a roller-coaster ride right now,” he said.

At the other end of the spectrum, one dealer revealed he has taken a different approach altogether.

New Jersey dealer Rick DeSilva Jr. said he has not gone to the auction to buy a vehicle in at least two months. While he still turns to the auction to sell vehicles, the general manager of Liberty Subaru in Emerson, N.J., said he doesn’t buy there “because lately I haven’t been able to afford them at the auction.”

“The prices are crazy,” he stressed.

DeSilva belongs to a Twenty Group of Subaru dealers and said they are all seeing similar issues.

“Everyone is in the same boat,” he said, referring to the challenges his fellow Subaru dealers are seeing on both the new and used sides of the market. “Everyone is still fighting for the same used cars that are out there.”
 
However, Jeff Braatz, president of Paradise Motors in Lansing, Mich., said that earlier in 2011, “it was the strongest wholesale year I’ve ever seen … probably right through the end of the July,” but now things have cooled off.

“It’s kind of a mixed bag, I think. The late-model cars seem to be dipping a bit right now. They were really, really strong … they were bringing, in my opinion, a lot of money,” Braatz explained. “They seem to be coming back to where they should be. I see prices cooling off a little bit, even in the last few weeks.

“Junk is really not bringing much,” he added. “But again, spring is right around the corner, and they’ll go nuts, again, right?”

Braatz revealed he was at an auction on Tuesday and discovered that there wasn’t much being sold, “so it appears to be a little softer on the used-car side, ” he concluded.

What the Wholesale Experts Are Saying

After hearing from some dealers on the frontlines, Auto Remarketing decided to also reach out to wholesale analysts for their take.

According to Manheim chief economist Tom Webb, the uncertainty surrounding retail demand plays a major role.

“Recent volatility in wholesale prices is a reflection of greater uncertainty as to how retail demand will hold up in the coming months,” Webb explained. “In addition, given that dealers are trying to operate with tighter inventory levels, actual and expected shifts in retail demand are being more quickly and sharply felt in the wholesale market.”

Meanwhile, ADESA’s Tom Kontos doesn’t see volatility throughout the overall wholesale market. Instead, he suggested what dealers may be experiencing is volatility within the respective segments they’re pursuing at auction.

“I can understand dealers expressing that there is volatility in the market based on their own particular needs,” he said.

For example, a dealer may find that a car segment he pursues one week may have relatively soft pricing, whereas the next week, the price may be pushed up.

But from his vantage point, Kontos said he has spotted less evidence pointing toward volatility, and instead, more indications that there has been a “gradual softening overall in pricing.”

Black Book, which puts out a weekly “Beggs on the Used Car Market” video on wholesale activity from managing editor Ricky Beggs, has spotted slowdowns in wholesale values for quite some time.

“For the past several months, everything has been down, down, down,” said Eric Lawrence, director of media relations for the company. “The trend has been decisively downward.”

For the car-segment side of the wholesale market, values dropped for 14 straight weeks, Beggs revealed in Monday’s report. Last week, car prices dipped $53, which was a heavier drop-off than any of the previous 13 weeks. 

“The auction prices are moving and probably slightly more than a month ago," Beggs said of the overall market.  "The past week all 10 car segments did decline. An interesting note was that four of the 10 car segments declined slightly less than they did the week before, while the other six declined more."

Trucks, meanwhile, were off $69. The only time in the past year where trucks prices have declined more, Beggs said, was the week ending Sept. 24, 2010, when they fell $72.

Offering even more insight, Beggs told Auto Remarketing on Tuesday, “There are a few more ‘no sales.’ Consumer confidence is not helping this fall seasonal adjustment, but if not for the tight supply of used vehicles in the wholesale market, the decline in values would probably be even greater.

“The auctions that are more focused on dealer consignment and less on institutional accounts seem to be having fewer no sales. The dealer accounts are reacting and adjusting floors a little more timely, thus making the transaction happen. Those markets are still declining while seeing fewer no sales,” Beggs added.

Lawrence also pointed out that some of the nicer-condition units at auction are fetching higher prices. This stems from the used-car supply shortage, which has led  many dealers to decide not to wholesale models in nicer condition,  Lawrence noted. Instead, they are keeping them on their lots to retail.

Kontos also emphasized a similar point, in that late-model used units (three years old or less) have been somewhat “resistant” to the underlying price softening. Of course, these vehicles — especially the two- and three-year-old units — came out when new-vehicle sales dropped sharply in the industry.

So subsequently, the supply of these late-model cars is not as strong as it could have been under more “normal” circumstances, Kontos highlighted. 

While there has been some alleviation in wholesale pricing recently, it’s only down from historic highs the market had been showing, he went on to note..

Coming back to Webb, he explained: “Wholesale used-vehicle prices have fallen in recent months and weeks. Much of that is a reflection of normal seasonal forces, but it is also true that seasonally-adjusted prices have fallen from their May high. Even with these declines, used-vehicle prices relatively (and historically) speaking are exceptionally strong. In fact, the ability of the used-vehicle retail market — and by extension wholesale values — to withstand the dismal economic backdrop of the past several months has been noteworthy.”