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ATLANTA — After months of soaring auction prices, Manheim Used Vehicle Value Index is finally showing a continued break in growth.

The reading for July came in at 118.9, marking two consecutive months of downward momentum. The last time the index fell two months in a row was November and December of 2008.

Manheim's Tom Webb reminded the industry that although the index has dropped in consecutive months, the reading still remains much higher than when the string of decreases happened previously. In November of 2008, the index was 98.3, and a month later, it was 98.0.

"The rate of decline in July was greater than in June, but the magnitude and duration of the previous run up in wholesale pricing means that used-vehicle values are still at historically high levels," Webb declared.

Even looking back at this point in 2009, Webb said the index now stands 3 percent higher. The declines, however, are taking the index down from its all-time high point, which was 121 in May of this year. 

So will the index continue its downward trend?

"Valuations for late-model used vehicles in the coming months will be increasingly influenced by the ability to manage carryover inventories and new-model introduction," Webb explained.

"Last year, carryover inventory was flushed out by the Cash for Clunkers program," he continued. "This year, a low inventory unit count (and hopefully an improved labor market) should provide enough natural demand to handle the transition."

Prices of Off-Rental Units Reach New High

Manheim found the average price for a rental unit sold by the Detroit 3 hit a new high in July. Webb indicated that the average climbed above $22,500. He believes this price was established because of low supplies, lower mileage and a richer mix of models.

"Rental risk units had an increase in average price for both the month and year-over-year," Webb explained.

"As expected, the average mileage on a rental risk unit stabilized in July after declining in the first half of the year," he added.

Select Segments Reveal Price Strength

Manheim determined luxury vehicles have underperformed the overall market not just in July, but also through the first seven months of the year.

"That's because they are not experiencing the same restricted supplies that exist for the other market classes," Webb interjected.

Manheim also noticed many SUV models showed weakness in July, like luxury vehicles. However, Webb emphasized the segment is still up substantially year-over-year — 4 percent to be exact.

Furthermore, market classes with strength in July included compact cars and full-size pickups. Compact cars led the way in Manheim's analysis with an upward gain of 6.6 percent.

With respect to price tiers, Manheim also noted the weakest segment on a year-over-year basis has been vehicles in the $20,000 to $25,000 price range. Analysts said the two strongest segments were vehicles priced between $6,000 and $7,000, and those priced between $13,000 and $14,000.

Update on Fleets

Continuing on, Webb explained that prices for midsize cars coming out of commercial fleets retreated in both June and July after hitting new records in March, April and May. He pointed out that the average price received for these units at auction remains well above year-ago levels.

"For most fleet managers, any easing in price for midsize cars that may have been experienced in July was more than offset by exceptionally strong pricing for pickups and vans," Webb determined.

"Many of the pickups coming out of fleets in July had lower-than-normal mileage and attracted strong bidding," he went on to say.

Waiting on Strong Retail Recovery

Webb then moved on to turn his index discussion into a review of retail sales trends, first touching on new vehicles.

The Manheim economist cited the Federal Reserve Board's revised seasonal adjustment factors for new-vehicle sales that resulted in a July SAAR of 11.5 million. Webb calculated this figure placed July's new-vehicle sales pace below March and May of this year.

"The level of sales is also still below basic replacement demand and is reflective of an economy that is producing only meager income gains," Webb stated.

Moving on to preliminary numbers from CNW Research, Webb noted that franchised dealers had weak used-vehicle sales in July. However, he mentioned the publicly-traded dealership groups reported — on a sales-weighted basis — a 13-percent increase in same-store used retail sales for the second quarter.

"And, importantly, the increase in volume was achieved without any further erosion in gross margins," Webb mentioned.