Dealers had to dig deeper into their floor plan dollars yet again last month. Manheim reported that wholesale prices (on a mix-, mileage- and seasonally adjusted basis) climbed in January, February, March and now April, too, extending a streak that dates back to December of last year.

This movement resulted in the Manheim Used Vehicle Value Index coming in at 124.9 in April, which represented a 4.8-percent increase from a year ago. Chief economist Tom Webb tried to explain why wholesale prices haven’t softened much like they usually do by the time federal income tax filing deadline hits in mid-April.

“Most market participants had been expecting to see some easing in used-vehicle values due to rising wholesale supplies by this point in the year. As an explanation of why it hasn’t happened, we can only beat the same old drum — the strength of the retail market is preventing any meaningful decline in prices,” Webb said.

“The competitive nature of the wholesale market means that dealers keep on bidding until their expected grosses become insufficient to cover the risk. Today, gross margins have stabilized, and net profits have soared as a result of higher throughput and increased operating efficiencies,” he continued.

All six vehicle segments Manheim tracks to compile the index rose in April. Leading the way was pickup prices, which was the only segment to climb by double digits (11.1 percent).

Four other segments posted strong price increases, as well, including:

— Compact cars: up 3.3 percent
— Midsize cars: up 8.5 percent
— SUVs and crossovers: up 5.0 percent
— Vans: up 6.3 percent.

“The increase for luxury cars is, however, insignificant,” Webb said about the price movement for that segment, which ticked up by just 0.3 percent.

“Although wholesale pricing in the luxury segment has suffered for more than a year, luxury vehicles outperformed the overall market in April. Most of that was due to easy year-over-year comps,” he continued.

Webb made one other general observation about April’s wholesale price movements.

“An analysis of average mileage by price tiers indicates the sweet spot in the wholesale market has moved up in price,” he said. “In April, the strongest pricing (and lowest relative supply) was in the $12,000 to $14,000 price range. In 2013 and early 2014, the strongest pricing was often found in the $8,000 to $10,000 price range.”

Update on Rental Risk Units

Manheim reported that unadjusted for mileage and mix shifts, auction prices for rental risk units continued to rise in April.  But adjusted for mileage and mix, prices softened marginally from March, however, they still jumped nearly 7 percent from a year ago.

The latest index report also mentioned average mileage slipped below 40,000 for the first time this year, but was still 9 percent higher than a year ago.

“Volumes sold at auction remained on the low side, and industry sources indicate new units sold into rental fleets declined 7 percent in the first four months of 2014 compared to a year ago. The bulk of that decline was accounted for by domestic manufacturers,” Webb said.

Retail Sales Observations

As he always does as a part of the index release, Webb recapped the month’s activity in the retail market.

First on the used side, Webb highlighted strong sales and even stronger profits. He referenced CNW Research data that showed total dealer sales of used vehicles rose 4 percent in April, resulting in a year-to-date increase of 2 percent.

Webb also pointed out that retail used unit sales by the seven publicly traded dealership groups increased more than 10 percent in the first quarter, climbing 7 percent on a same-store basis.

“And more important, net profits were at record levels due to greater throughput, increased operating efficiencies and strong F&I income,” Webb said. “Likewise, CPO sales increased 9.5 percent in April and 10.5 percent year-to-date.”

In the new-model space, Webb recapped the April activity by pointing to higher volumes and transaction prices, producing a seasonally adjusted annual rate of 16.1 million in April.

“Retail deliveries and lease originations were strong,” Webb said. “Total new-vehicle fleet sales were up in April, but only because of significant increases from a year ago in both commercial fleet and government purchases.

“New vehicle sales into rental were down more than 3 percent in April, and off 7 percent for the first four months of the year,” he continued.

“Stronger retail new-vehicle demand and reasonable production schedules left dealer inventories in much better shape than they were a couple of months ago,” Webb went on to say. “That suggests manufacturers might continue to enjoy higher average transaction prices and flat incentive spending. Both of which, of course, support used-vehicle values.”