CARY, N.C. -

Experts from Black Book, Cox Automotive, J.D. Power Valuation Services and KAR Global are all using their collective knowledge and skills to assess current wholesale values that have dropped significantly because of the coronavirus pandemic.

These same firms also are tackling the challenge of projecting when wholesale prices might rebound, often using the term “several months” instead of any specific timeframe as stay-at-home orders remain in place throughout many locations.

“When you look at this market, essentially buyers and sellers are in pause mode,” Cox Automotive chief economist Jonathan Smoke said on Tuesday during the company’s quarterly call to examine the Manheim Used Vehicle Value Index among other industry trends.

“You don’t see a lot of evidence of desperation. Instead, you see evidence of buyers looking for opportunities but in essence the spread between the bid and the ask,” Smoke continued. “At the end of the day, only the vehicles that sellers — be they dealers or commercial companies — are prioritizing to move. Those are the only transactions that are happening.”

More details from Manheim

Because change happened so rapidly in March, the latest index reading still looked rosy on a year-over-year comparison.

Cox Automotive reported that wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 1.10% month-over-month in March. This brought the Manheim Used Vehicle Value Index to 141.9, which still represented a 4.4% increase from a year ago.

After a start of increases in weekly Manheim Market Report (MMR) prices at the end of February, Cox Automotive acknowledged that March saw the full-fledged start of tax refund season, which delivered the biggest weekly price increases since 2014. However, that all began to change as the month progressed.

Analysts determined 3-year-old vehicle values in aggregate were up 1.7% after the first two weeks but began to decline and ended up 1% for the month. The worst-performing model year in March since the downturn began was 2019, according to Cox Automotive.

“It should be noted that, given the unprecedented downturn in sales and market disruption that the industry is experiencing because of the COVID-19 pandemic, the decline we have observed thus far in MMR values at the vehicle level and at all aggregation levels does not fully reflect the declines occurring in the relatively limited number of sales transactions taking place,” Cox Automotive analysts said in the report that accompanied the latest index update.

Turning back to the Tuesday conference call, Smoke reiterated a future projection, assuming that the general economy remains in shutdown mode for the remainder of April before a gradual reopening process begins in May.

“I think there is going to be pressure on prices for at least several months through the middle part of the year and then potentially we start to see that pressure relieve as we get into the end of the year and into next year. That’s following the most likely case to occur,” Smoke said.

“The more negative case where we don’t actually see the pandemic reaching a declining stage, that view is much uglier,” he added.

Insight from KAR Global

Auto Remarketing also connected with KAR Global chief economist Tom Kontos on Tuesday. Kontos shared an array of insights, explaining that he looked back at wholesale data available before and after the 9/11 tragedy to generate some perspective about what’s happening in connection with COVID-19.

Kontos recapped that wholesale prices stayed in a soft pattern for about 20 months in connection with 9/11. However, Kontos pointed out that an additional drag on prices 19 years ago was the volume of off-lease vehicles going down the lanes. Nowadays, Kontos doesn’t see off-lease volume being a price impediment.

“It was about 20 months of a downturn in prices around 9/11,” Kontos said. “Now 9/11 didn't trigger all of that and neither did the recession that occurred about the time 9/11. I had almost forgotten that 9/11 didn’t trigger the recession. There was already a recession happening that started in March 2001. Then it ended in November 2001. So in essence, 9/11 didn't do what this tragic situation is doing, namely putting a shutdown on the entire economy. Back in 9/11, we got back on our feet relatively quickly. It's a testimony to that because that recession ended in November.”

Fast forward to now, Kontos shared pricing data he compiled that compared the figure spotted as of the week of March 16 and compared it to the average seen during the previous six weeks. The comparison generated a decline of 10.6% as the average wholesale price dropped from $17,019 to $15,215.

That price drop came even as KAR Global deployed a multi-channel digital dealer recruitment and engagement campaign that led to record levels of Simulcast bidders and bids.

Again as of March 16, Kontos reported that unique bidders increased 58% over the previous six-week average and bids more than doubled, up 115%. Despite high online participation, dealer demand weakened significantly, with total commercial sales volumes decreasing 39.2% and corresponding drops in conversion (down 24.5%).

And now, perhaps the multi-million-dollar question: When will prices rebound?

“What we’re faced with right now, I’m advising our sellers at auction is you can expect prices to stay way down from where they were pre-pandemic. Unless you want to wait it out another several months, I won’t say 10 or 20, but several months, maybe the rest of this year before we see an uptick in wholesale values,” Kontos said.

View from J.D. Power

It was another rough week for the used-vehicle segment of the automotive industry as sales across all makes and models dropped precipitously throughout the country, according to the most recent COVID-19 Valuation Services Update issued by J.D. Power issued this week.

At the segment level, analysts indicated compact and midsize car prices fell most in the industry (a similar result occurred the week prior). J.D. Power noted large pickup prices held up relatively well, which is likely due to less stringent stay-at-home mandates in high truck demand states (Texas for example).

Premium segment losses were generally less than mainstream declines, according to Jonathan Banks, vice president of vehicle valuations and analytics at J.D. Power Valuation Services.

“It is important to remember that the market dynamics for premium vehicles differ from mainstream makes and models” Banks said. “Premium vehicle demand — and thus price — does not strengthen through a given first quarter like it does for mainstream vehicles. This relative lack of inflation pre-COVID-19 explains why the premium segment appears to have been less affected.”

Projections from Black Book

While sharing updated projections earlier this week, Black Book analysts broke down its wholesale price forecast into two parts, beginning with the impact under their most likely scenario, followed by one considering a severe recession.

In the short-term outlook — the next three to nine months, the components of the forecast of the most likely scenario included:

— An overall 15% drop in wholesale prices for 1- to 6-year-old vehicles compared to the baseline seen before the coronavirus pandemic started.

— An overall 16% decline for SUVs and light trucks and an 11% decrease for cars.

“There is a high probability that older, cheaper vehicles in good condition will not decline as much due to increased demand on those units,” analysts said.

Black Book then delved into its longer-term projections for 36-month residual values under the most likely scenario.

“The effect of the pandemic will be felt, but we project that values will return to the pre-virus baseline as used supply will shrink due to cuts in production in 2020 and 2021,” analysts said.

Black Book then moved on to its wholesale prices impact under a severe recession scenario.

Again, in the short-term outlook — the next three to nine months, the components of the forecast of the severe scenario included:

— An overall 22% drop in wholesale prices for 1- to 6-year-old vehicles compared to the baseline seen before the coronavirus pandemic started.

— An overall 25% decline for SUVs and light trucks and 15% decrease for cars.