Manheim chief economist Tom Webb rattled off the four ingredients that usually combine to create a significant drop in wholesale prices. All four apparently presented themselves in November, but the Manheim Used Vehicle Value Index ticked up for the fifth time in the past six months.

Before going into his explanation for why it happened, Webb indicated wholesale used-vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) inched up in November, pushing the index reading to 122.4 — the second-highest point it has been all year.

However, Webb acknowledged November’s reading still represented a 0.2-percent decline from a year ago. The developments are prompting dealers and used-car managers to ask, “Why haven’t prices dropped more?”

Webb replied by noting that last month, “new-vehicle inventory levels were higher than in previous months, wholesale supplies were rising, used retail gross margins remained narrow, and it was a certainty that some manufacturers would get aggressive with incentives to jumpstart year-end closeout sales (and they did).

“That’s an environment that guarantees falling wholesale values, right? Well, not this time,” Webb continued.

“And the reason was simple: Dealers have been quickly selling their wholesale acquisitions — and at a nice profit, despite those narrow gross margins,” he went on to say.

With exception of compact-car prices — which remained flat year-over-year — the five other vehicle segments Manheim tracks for its monthly index report posted significant swings that all told resulted in the 0.2-percent uptick.

Three segments dropped in price last month according to Manheim, including

—Midsize cars: down 1.1 percent
—Crossovers and SUVs: down 1.1 percent
—Luxury cars: down 2.4 percent.

Meanwhile, prices for the other two segments strengthened in November as pickups climbed 4.4 percent and vans jumped 3.4 percent.

“Luxury cars, after slightly outperforming the market in October, slipped back to the bottom of the pack in November,” Webb said.

“Wholesale pricing for midsize cars has also underperformed the overall market in recent months, which is not surprising given the level of inventory and incentives in that segment in the new vehicle market. The strong segments of the market continued to be pickups, vans, and sports cars,” he continued.

“Our analysis of mileage by price tier indicates that vehicles in the $11,000 to $13,000 price range were the weakest segment during the first 11 months of 2013,” Webb went on to say.

“Vehicles in the $8,000 to $9,000 price range were the strongest. In each case this corresponded to their growing, or declining, share of auction volume,” he added.

Before moving on to other topics, Webb touched on one other wholesale element, mentioning that rental risk prices at auction eased last month.

In November, Manheim determined auction prices for rental risk units (mix- and mileage-adjusted) declined 2 percent from October and were down 1 percent from the prior year.

“Average mileage increased modestly, and volumes sold were light,” Webb said.

Retail-Sales Analysis

Webb continued its latest index commentary by highlighting how used-vehicle sales strengthened in November.

“As good as new-vehicle sales were in November, used-vehicle sales were even better — at least for franchised dealers who posted a 10-percent increase in unit sales, according to CNW Research,” Webb said.

“Total used unit sales, including independent dealers and private-party transactions, rose a more modest, but still strong, 4.5 percent,” he continued. “Preliminary numbers for manufacturer certified pre-owned sales in November showed that they continued on their record-setting path.

On the new-model side, Webb summarized the activity as higher sales generating higher prices.

The Manheim economist recapped that new car and light-duty trucks sold at a seasonally adjusted annual rate of 16.4 million in November. He said it was the fastest sales pace since February 2007, excluding Cash for Clunkers.

“And it came in spite of overall consumer spending that was lackluster at the start of the holiday selling season,” Webb said.

Webb added that new-vehicle sales were particularly strong in the days following Thanksgiving.

“Give credit to clever marketing by both manufacturers and dealers, increased incentive spending, and product offerings that continue to connect well with consumers,” Webb said.

“Despite the increase in incentives, average new-vehicle transaction prices continued to rise in November, up $946 from October and up $328 from a year ago, according to Kelley Blue Book,” he continued.

“This will moderate future declines in the Manheim Index since it represents a dollar amount, not a residual percentage,” Webb went on to say.

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