CARY, N.C. -

In a nutshell, the vehicles are in the wholesale auction supply pipeline, but there isn't a big appetite for buying (or maybe even selling) right now. 

That is one takeaways from Auto Remarketing's ongoing analysis of wholesale and retail used-vehicle data and COVID-19 impacts being tracked by the likes of J.D. Power, Cox Automotive, KAR Global and others. 

In auction supply parlance, Cox Automotive describes vehicles being added to wholesale inventory as being a “check-in.”

This time of year, those usually climb. Not the case this year. But as the company’s chief economist Jonathan Smoke explained in a quarterly call Tuesday, there is still a significant amount of “sellable commercial inventory” at Manheim auctions.

“This is typically a very busy time of the year for inventory increases, because sellers are trying to line up with the biggest demand for the year. So, we’ve actually been seeing check-ins down dramatically, virtually every week,” Smoke said.

The opening week of the crisis, there was a major “influx” of rental-risk vehicles moving into the supply. Otherwise, check-ins have been down, with Smoke describing them as “down substantially on a year-over-year basis.”

But with not as many cars being sold, inventory at auctions is still climbing.

“As of last week, we measure sellable commercial inventory, which is the thing that tends to build and then takes time to sell off, up 33% on a year-over-year basis,” Smoke said, referring to the week that began March 30. “But we’re not yet at the stage of needing to buy land to find places to park vehicles.

“We’re not quite at the level that the market was back in 2016, where we had the first part of the off-lease major growth hitting the market when the market was a little bit down in terms of demand on the retail side,” he said. “So, you had a lot more sellable inventory back then and more pricing pressure.”

Again, with a sales decline and the fact that check-ins are still happening (despite being “down dramatically,”), “it means inventory is growing week to week,” Smoke said.

 He later explained that with retail consumers showing “relatively strong” levels of shopping and interest in vehicles, “we continue to be hopeful that there will be pent-up demand that comes back into the market and helps to erase some of that inventory. But I think realistically, we’re not expecting retail — of either new or used — to be recovered by the time we reach the end of the year.” due to job losses and disruption to the economy, he said.

Providing some more historical context, Smoke later added: “All in all, it’s not an unprecedented level of inventory, and it’s one with some recovery in sales, I think the hangover in the market will be a lot less severe than people are fearing at this point.”

Wholesale transaction volume declines are approaching 80%, Smoke said. But he doesn’t see this as “desperation.”

 “The way that I take a step back and look at this market, is that essentially, both buyers and sellers are in pause mode,” he said.

'A lot of cars we would have normally sold' 

Over at KAR Global, ADESA Simulcast had a 58% gain in unique bidders (compared to the prior six-week average) the week of March 16, with simulcast bids climbing 115%. But total auction sales volume was down 39.2%.

Likewise, total upstream sales volume was down 35.9%.

Auto Remarketing connected with KAR chief economist Tom Kontos, who provided some additional context into wholesale supply and volume, among other areas.

He certainly sees the volume impact of the pandemic different from that of the aftermath of Sept. 11, 2001.

“From a volume perspective, one way I distinguish this period from 9/11 was we have already dealt with the surge in off-lease volume. That's already happened, so at least we don't have that,” Kontos said. “But there are a lot of cars that we would have normally sold.

“We have optics into the upstream space better than anybody else because we host so many of the upstream, private-label sites,” he explained. “If things were running normal, we would be selling those cars upstream, or if they didn't sell upstream, we send them to our auctions and they would be at next week's sale, clearing that inventory.”

Many cars that are running upstream are getting no-saled due to short demand and many dealers forced into “locked-down mode.”

“One thing we did not stop doing once we suspended operations was posting cars on the upstream sites,” Kontos said, referring to the roughly two-week stoppage of sales at ADESA locations that ended in early April. “We were still 'selling' cars but the percentage of listings that are being sold right now is way down. Normally it would be well above 50% of the cars that are offered upstream get sold upstream. Now it's well below I would say 20%.”

Dealers will not simply be able to hold on to those cars “forever,” so plans are being made to have them transported to ADESA locations.

“We do see a limited surge of off-lease volume that will come when we start back up again because of the backlog of no-sales in the upstream channels,” Kontos said.

He would also delve into the intricate “dynamics” of repossession, trade-in and off-rental volumes, and noted that off-rental is one where a supply “surge” is more apt to happen.

“I would say the off-rental is the one more likely to surge because the rental car companies don't have a lot of cars being rented right now,” Kontos said. “So, all of those cars are sitting on their lots instead of being out and about. They have to get rid of them otherwise they just have way too many cars sitting around.

“Spring break really never happened. That is a time of year when they keep a fair amount of vehicles in inventory and they have them out rented while people are on spring break. We just don't have the happening right now,” he said. “Normally they would stay in service another six weeks perhaps, but now they're going to be coming right back as soon as we can open the gate.”

J.D. Power sees sluggish auction activity

Wholesale auction sales volume of vehicles up to 8 years old was down 37% week-over-week during the week ending April 5, falling to 14,700 units, according to a report released Friday by J.D. Power Valuation Services.

And before the virus, the weekly average for that week was around 113,000 units sold at auction.

“Note that under normal circumstances, weekly volume in California alone is similar to the volume we recorded for the entire U.S. last week,” J.D. Power analysts said in the report.

Stay-at-home orders increased during the week of April 5, bringing “physical sales to a virtual halt,” the company said.

“At the state level, the more stringent stay-at-home measures enacted in Florida during the week ending April 5 pushed auction volume down 60% in the state, the steepest relative decline among major states,” J.D. Power reported.

“While down dramatically from pre-outbreak levels, auction activity was highest in the Mid-Atlantic, Texas, and Desert Southwest,” the company said, referring with the latter to states like Arizona and Nevada. “Volume losses across segments continue to be consistent across the board, reflecting the overall industry average.”

By segment, many week-over-week auction sales volume declines the week of April 5 were in the 30-40% range, with a few going north of 40%, the J.D. Power data shows.

Midsize vans were down 43% in auction sales volume, small cars were down 42% and compact premium SUVs were down 41%.

Of the segments listed by J.D. Power, only large SUVs (down 24%) and midsize premium SUVs (down 26%) had declines less than 30% the week of April 5.

Auction sales volume in March was at 283,000 units, down 31% month-over-month and close to 40% year-over-year, according to J.D. Power.