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Manheim economist Tom Webb said it’s “quite easy and quite logical to assume” that used-vehicle retail sales will hit an all-time high before 2015.

Webb backed up his projection by highlighting how used-vehicle retail sales during the first quarter of 2013 moved 12 percent higher year-over-year against some headwinds that are slowing other industries.

According to Webb, one of the primary drivers of used-vehicle sales is the availability of financing.

“On any given day, there are literally hundreds of thousands of vehicles with owners who would like to trade up to get something a little bit better if they could do so with an affordable monthly payment. Given the availability of retail financing, a natural changeover of those vehicles over time will occur,” Webb said last week during Manheim’s quarterly conference call with analysts and the media.

“Sometimes people think of the used side as a need-driven market where someone has had a problem with a vehicle, and they’ve got to get out of it. But in reality, it’s driven by the desire to trade up for something a little bit better,” Webb continued.

CNW Research highlighted the used-vehicle industry posted its best March performance since 2002 as sales topped 3 million. Based on the firm’s data that goes back to 1993, the best retail sales year for franchised and independent dealerships came in 2005 when dealers turned more than 30.6 million used units.

For dealers to keep striving toward that best-ever mark, Webb explained how the market is going to have to perform like it’s been doing so far this year. He noted dealers are selling used vehicles despite significant consumer obstacles — delays in tax refunds, a rise in payroll taxes and intermittent spikes in gas prices.

Webb admitted it was “extremely surprising” to see used sales climb by double digits during the first quarter while other consumer spending segments such as casual dining sagged during the same period.

“To a certain extent, the used-vehicle market has been impervious to these factors in terms of retail sales activity,” Webb said.

So that’s why Webb is so optimistic about used sales.

“On the other hand, I think it’s almost impossible to come up with a scenario where new-vehicle sales hit an all-time high before 2015,” Webb said.

The Manheim economist recapped that new cars and light-duty trucks sold at a seasonally adjusted annual rate of 15.3 million units in March. This performance was identical to the average pace during the past four months, and it was also consistent with his outlook for the full year.

“To date, the leveling-off in the new-vehicle sales rate has not brought forth the traditional response — increased incentives. Nor do we believe it will,” Webb said.

“To be sure, lease support has grown and the easing of retail financing continues (longer loans at low rates to customers with lower FICOs), but the actions have not been excessive or irresponsible,” he continued.

“Indeed, given the strength of used-vehicle residuals and the exceptional way loan portfolios have performed of late, it is likely the favorable lease and credit cycle has considerably longer to run,” Webb went on to say.

Manheim Index Declines in March

During Friday’s call, Webb also discussed the latest Manheim Used Vehicle Value Index.

Wholesale prices (on a mix-, mileage-, and seasonally adjusted basis) fell in March. It was the third consecutive monthly decline, and it brought the index reading to 120.4, which was 4.6 percent lower than a year ago.

“Although the availability of vehicles in the wholesale market has improved recently, so too has the level of retail demand,” Webb said.

“As such, we would view the recent moderation in wholesale pricing as more a natural realignment with respect to new-vehicle prices than a supply-driven issue,” he continued. “Retail used unit sales increased nicely in the first quarter of 2013 as new-vehicle sales begot used-vehicle transactions and higher off-lease and off-rental volumes led to the subsequent retail sale of those units.”

All six vehicle segments included in Manheim’s index report declined year-over-year. Three segments decreased more than March’s overall drop, including compact cars (down 5.3 percent), midsize cars (down 6.5 percent) and luxury cars (down 6.0 percent).

Two other segments moved almost as much as the overall reading, as SUVs and CUVs slipped 4.3 percent and van dipped 3.9 percent in March. Meanwhile, trucks edged just 0.3 percent lower year-over-year last month.

Rental Risk Prices Reflect Richer Mix

Manheim determined a straight average of auction prices for rental risk units reached a new high in March. But Webb said this development mostly reflected a shift in the composition of vehicles sold.

For example in the first quarter of this year, Webb pointed out current and previous model-year vehicles accounted for 61 percent of all of rental risk units sold, and older units accounted for the remaining 39 percent. In the first quarter of last year, he noted current and previous model-year vehicles accounted for only half of all rental risk units sold.

“The model mix of vehicles sold at auction has also moved upscale relative to last year,” Webb said. “The average mileage on rental risk units sold during the quarter was about 5 percent lower than last year.”

When asked about automaker incentive activity in connection with this wholesale segment, Webb reiterated that “incentive activity is always negative toward pricing of those off-rental units.” The analyst wondered about the trend in light of General Motors ramping up incentives during March. 

“The numbers for GM were strongly affected by the activity on their full-size pickups, for natural reasons, which is not a big issue in terms of the rental fleet,” Webb said about the OEM’s move to turn excess pickup truck inventory.

Webb then discussed a GM model that might be more prominent in the off-rental lanes: the Chevrolet Malibu.

“I actually believe (GM has) shown a strong amount of price discipline given the fact that sales rates are starting to level off. A prime example is the Malibu,” Webb said. “As the vehicle demand has weakened a little, they’ve decided to reduce production whereas I think the GM of the past would have put incentive money on it.”

Alternative-Fuel Vehicles in the Lanes

When asked during the call, Webb said he hasn’t seen enough volume to say anything about how pure electric vehicles are performing in the wholesale market. However, he offered an update on what hybrid models are doing at auction.

“I would say that the hybrids have actually done sort of as you would expect in terms of residuals,” Webb said. “To a certain extent, those vehicles have been pushed onto the market. As you know in the very early stages of their offering, those vehicles were basically selling at sticker and they were in short supply. Any time you have a new-vehicle market that’s selling at sticker and a short supply on the new-vehicle side, it’s going to command a good residual value.

“I would also say that now that we’ve gotten some older hybrids back in the market, they do seem to retain their value even at the higher age points whereas many people were worried about battery life and those things. It hasn’t been as problematical as some people expected,” he concluded.

Nick Zulovich can be reached at nzulovich@autoremarketing.com. Continue the conversation with Auto Remarketing on both LinkedIn and Twitter.