ATLANTA — Even after the usual seasonal gains were considered, wholesale prices showed a strong year-over-year upswing during February, according to Manheim's Tom Webb.

There were value increases across the board, particularly among truck segments, which were up double digits from the prior-year period.

Specifically, the Manheim Used Vehicle Value Index during February was 118.1, up 11.9 percent year-over-year and up 0.4 percent from the previous month.

"Wholesale used-vehicle prices rose in February, even after accounting for the large normal seasonal upswing in pricing that occurs at the beginning of the year," explained Webb, Manheim's chief economist.

"The potential wholesale supply of used vehicles remains constrained by the low level of new-vehicle sales," he added. "Meanwhile, the demand for used units in the wholesale market remains strong."

Leading the wholesale price gains were vans, which climbed 16.7 percent from the prior-year period. SUV values were up 16.3 percent, pickups improved 14.4 percent and luxury cars were up 14.3 percent.

Compact car values jumped 8.7 percent and midsize cars were up 7.3 percent.

"Price changes by market class have evened out over the past several months. On a year-over-year basis, the van segments (from compact passenger to full-size cargo) have shown the biggest gains," Webb shared. "Not unrelated, these are the two segments with the biggest falloff in available supply."

Continuing on, Webb looked at trends among specific price classes. He explained that the supply of previous and current model-year units has been "exceptionally" low because of fewer off-rental units, thus leading to stronger pricing.

"That, however, has been the case for more than a year. And, to a certain extent, prices for the newer model used vehicles have been bumping up against the ceiling imposed by new-vehicle prices," Webb pointed out.

"In recent months, it has been older (especially three- to four-year-old vehicles) and units with higher-mileage that have enjoyed the biggest price gains," he added. "This has been beneficial to those remarketing end-of-service fleet units."

Impact of Toyota Recalls on Residuals

Though it likely wasn't a surprise, Webb indicated that residuals on recalled Toyota models have been proportionately softer than the overall market, as of late.

However, there is quite a bit of gray area as to how much of this residual loss is due to the recall itself or other factors that complicate the matter.  

"The decline has not been as outsized as the publicity, but it has been significant," he explained. "From an analytical standpoint it is impossible, in real time, to segment how much of the decline is specific to the recall, is related to knock-on effects, is reflective of higher incentives, is representative of self-reinforcing short-term factors, stems from uncertainty, or is symptomatic of a permanent shift."

Webb continued: "Given that some Toyota models were underperforming compared to their past history even before the recall as a result current and past lease deals, and that some guidebook pronouncements can be a self-reinforcing exercise if lenders temporarily adjust loan amounts, we expect part of the recent decline will be reversed."

Incentives' Potential Impact

Next up, Webb looked at the possible fallout for the used-vehicle market from higher incentives. He suggested that with "manageable" actual new-vehicle inventory levels, the "tick-for-tack" incentive hikes appear to stem from the Toyota recall.

"With the incentive of choice being zero-percent financing, the key will be how far down the credit scale those offers will be made available and what sort of down payment the lenders will require," he noted.  

"Given that GM was able to achieve a $4,000 increase in average transaction price in February versus a year ago, the higher level of incentives will likely have less of an impact on used vehicle residuals than in the past," he concluded.