The Manheim Used Vehicle Value Index dipped ever so slightly on a sequential basis in May. But if dealers remember what they paid for inventory during the same month last year, they’ll notice that more funds came out of floor plan this past month.

Manheim determined wholesale used vehicle prices (on a mix-, mileage- and seasonally adjusted basis) moved the May index reading to 124.7, representing a 4.7-percent increase from a year ago.

For the record, the April index reading was 124.9, but Manheim chief economist Tom Webb emphasized how wholesale prices are maintaining their position well past the typical spring market.

“The continued strength in wholesale pricing reflects a strong retail market and only modest increases in wholesale supplies,” Webb said. “Readily available retail financing at attractive terms has enabled dealers to achieve healthy profits on the subsequent retail sale of their auction purchases.

“In addition, the always competitive retail used vehicle marketplace has become more so as franchised dealers increasingly focus on (and improve) this side of their business,” he continued.

For the second month in a row, prices for vehicles in all six segments that Manheim tracks climbed higher in May. On a year-over-year basis, prices for vans and pickups paced the industry, each jumping by 9.8 percent.

The price increase for midsize cars wasn’t far off that pace in May, rising by 7.4 percent. The remainder of the increases covered compact cars (up 4.2 percent), CUVs and SUVs (up 3.8 percent) and luxury cars (up 0.9 percent).

“As was the case in April, all major market classes have year-over-year prices gains. The increase for luxury cars is, however, less than 1 percent. And, although the year-over-year gain for compact cars is 4.3 percent, in recent months their pricing has been soft. Pricing for pickups remains exceptionally strong,” Webb said.

Webb also touched on another general wholesale price trend.

“An analysis of average mileage by price tiers indicates the sweet spot in the wholesale market continues to move up in price,” Webb said.

“In May, the strongest pricing (and lowest relative supply) was in the $11,000 to $14,000 price range,” he continued. “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

Turning to the remarketing of vehicles previously in rental fleets, Webb summarized that slice of the wholesale market in just four words: low volumes, high prices.

Unadjusted for mileage and mix shifts, Manheim indicated auction prices for rental risk units declined in May from their April high but remained 5 percent above the year-ago level.

“Average mileage remained steady at just below 40,000,” Webb said. “Volumes sold at auction remained on the low side, but, with increased new-vehicle sales into rental in May, wholesale supplies should pick up in coming months.”

Used Retail Sales Commentary

As he usually does, Webb used part of his Manheim Index report to discuss how used vehicles turned at dealerships during the month.

Citing data from CNW Research and previously reported by Auto Remarketing, Webb mentioned how total used-vehicle sales in May came in unchanged from their year-ago level. He explained how the industry arrived at that level stemming from an 8-percent decline in private-party transactions.

“The combined used-vehicle sales of franchised and independent dealers were up 4 percent in May and 2.5 percent year-to-date,” Webb said. “That, combined with increased sales in each of the past four calendar years, means that dealer used-vehicle sales are on track to set a record in 2014.

“We have always considered wholesale pricing to be more closely tied (both theoretically and statistically) to dealer retail volumes than the overall sales total that includes private-party transactions,” he continued.

Surprise on New-Vehicle Side

Surpassing what was expected, Webb said new cars and light-duty trucks sold at a seasonally adjusted annual rate of 16.7 million in May.

“That was considerably above the consensus forecast that looked for something in the low 16-million range,” he said. “Clearly, analysts failed to appreciate the boost provided by five weekends and the Memorial Day pull ahead of some June sales. And, at least one manufacturer had a significant increase in rental deliveries. Nevertheless, there’s no denying that the retail new-vehicle market was hot in May, especially given the other measures of consumer spending in recent months.”

Beyond the raw sales numbers, Webb spotted another uplifting trend within the new-vehicle space.

“Importantly, in May, average new-vehicle transaction prices were higher and incentive spending was flat,” he said. “Inventory levels, with the benefit of higher sales, fell below the 60 days’ supply mark. That suggests that the healthy pricing and incentive scenario can continue.”

Financing Availability

Webb closed out his monthly commentary by returning to a previously mentioned topic — how the availability of financing for buyers is an uplifting driver on the wholesale side, too.

“There is no doubt that used-vehicle retail financing is always critically important to supporting wholesale values. But, in addition, there is the cascading effect from new vehicle financing,” Webb said.

“Growing new-vehicle sales with flat incentive spending would not have been possible without lenders’ stretching terms and offering higher loan-to-value ratios to keep monthly payments and down payments in check,” he continued.

“To be sure, those longer terms and higher LTVs could be interpreted as a shadow incentive, but that generally only comes into play if the loan turns sour. In May, the S&P Auto Default Index fell to a new low,” Webb went on to say.