Cox Automotive chief economist Tom Webb reiterated many of the foundational blocks of how the Manheim Used Vehicle Value Index is constructed when explaining why the October reading came in the way it did.

Manheim indicated wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) dipped 0.7 percent in October, while non-seasonally adjusted prices declined 2 percent during the month. The movement left the Manheim Index at 126.0 for October, an increase of 0.6 percent from a year ago.

Webb explained in his commentary that accompanied the latest index report that “although the Manheim Index is mix-adjusted, it does not account for overall inflation in new vehicle pricing or the shift to higher trim levels,” he continued.

“As such, the index will show an upward movement over time, and it is not inconsistent for the index to be ‘up’ even as commercial consignors report less-than-satisfying end-of-term lease residuals or lower repossession recovery rates,” Webb went on to say.

For index watchers who still might be unsure of how to digest the data, Webb shared a recommendation.

“For those perspectives, it is better to look at the index relative to its trend or in relation to a host of current and past new-vehicle price measures,” he said. “On that scale, wholesale pricing has shown some easing of late, but it is not particularly weak. 

“This is in line with our beginning-of-the-year expectation as we fully expected the wholesale supply challenges would be more daunting in 2017 and 2018 than in 2016,” Webb added.

Half of the vehicle segments Manheim tracks for its monthly update moved less than 1 percent as prices for midsize cars (up 0.2 percent) and prices in the SUV/CUV segment (up 0.5 percent) ticked slightly higher while luxury car prices inched 0.9 percent lower.

Changing more dramatically in October were prices for pickups (up 4.8 percent) and vans (up 3.3 percent) as well as compact cars (down 3.4 percent).

“On a year-over-year basis, wholesale pricing for cars, for the most part, remains down, while pricing for pickups, vans, SUVs, and crossovers is up,” Webb said. “In recent months, however, the easing in pricing has been across the board, and the difference in price performance between cars and trucks has narrowed considerably.

“An analysis of changes in average mileage by price tier suggests widespread declines in wholesale pricing in October, with only vehicles in the $13,000 to $14,000 range escaping the pressure,” he continued. “Additionally, vehicles in lower price tiers showed only slight weakness.”

Webb also mentioned that prices for rental-risk slipped in October.

Manheim reported that rental risk units sold at auction had a slightly smaller than normal seasonal decline in volume, but a slightly larger than normal decline in pricing. 

Average mileage, at approximately 38,500 miles, was higher than September, but 15 percent below last October.

“Auction pricing adjusted for broad changes in market class and mileage showed a 3-percent decline from September and a 2-percent decline from a year ago,” Webb said.

As he often does, Webb also recapped the retail side of the used-vehicle market in his monthly commentary, noting that dealership activity remains supportive to residuals.

“Third-quarter results for the six franchised dealership groups confirmed the pattern that we noted in the earlier CarMax report.  Namely that, although overall results were greeted less than enthusiastically by financial analysts, the key metrics of importance to future used vehicle values — same-store sales growth and gross margins — were positive,” Webb said. 

Webb noted that sales-weighted same-store retail used unit sales were up 1 percent in the third quarter. The uptick was the 28th increase out of the past 29 quarters, and gross margins were stable, according to Webb.

He went on to point out that while certified pre-owned sales fell for the second consecutive month in October, they remain up 3 percent year-to-date. 

He closed by touching on the buy-here, pay-here segment.

“The lower end of the used-car market also bears watching in the months ahead. In recent years, there has been a greater use of down-payment deferral programs to get a jump-start on the tax selling season, but the actual flow of refunds is still important,” Webb said.

“In 2017, the PATH Act requires that the IRS hold tax refunds claiming the Earned Income Tax Credit (EITC) until Feb. 15. And, according to IRS data, in past years, more than $100 billion in tax refunds had already been disbursed by mid-February, with much of that being EITC monies, which have the highest correlation with lower-end retail used vehicle sales,” he went on to say.