Both Black Book and J.D. Power Valuation Services are reporting that wholesale prices are continuing to soften after the profound rebound they made this summer following the initial onset of the pandemic.
However, both firms are seeing wholesale volume still being soft in the auction lanes as we get deeper into autumn.
According to J.D. Power Valuation Services’ latest Used Market Update, wholesale auction sales of vehicles up to 8 years old for the week ending Oct. 11 remained unchanged at 78,000 units, representing the fifth consecutive week that sales failed to surpass the 80,000-unit threshold.
Analysts also noted that sales for the week were approximately 19% lower than what’s typically recorded for the period.
Black Book looked to explain why volume remains stifled in its latest COVID-19 Market Insights.
“Rental companies held back some units to cover Hurricane-related rentals,” analysts said in the report. “Repossessions are slow to hit the market as the process slowed down significantly compared to pre-COVID days.
“Dealers are reporting that they are starting to send more unwanted units to auctions. This is great news as auctions have been low on available volume after the strong sales that were experienced over the summer months,” Black Book continued.
As far as values go, Black Book’s volume-weighted data showed that overall car segment values decreased 0.59% last week; not quite to the level analysts spotted a week earlier when they noticed car values declining by 0.92%.
Black Book indicated that subcompact cars had the largest decline for a second week in a row, exceeding 1%.
“Premium sporty cars with their low volume continue to retain their value well and experienced stability in pricing for a fourth week in a row,” analysts added.
On the truck side, Black Book’s volume-weighted information indicated that values in the overall truck segment (including pickups, SUVs and vans) declined by 0.35% last week, nearly mirroring the exact decrease recorded a week earlier of 0.34%.
The smaller crossover segments — subcompact and compact — had another week of large declines, dropping by 0.74% and 0.68%, respectively. But Black Book mentioned the depreciation drops for minivans and compact vans were even more significant as each segment retreated by more than 0.80%.
Also of note, Black Book said full-size pickup values dipped by another 0.19% last week.
Looking deeper into autumn, J.D. Power Valuation Services offered a forecast, projecting potential wholesale price paths when this tumultuous year closes.
“Despite a slowing used market, wholesale prices remain strong,” analysts said in their update. “Prices are expected to continue to move lower through October and into November as pent-up demand has been satisfied and pandemic-related macro-economic headwinds increase.
“By year's end, prices are expected to be greater than pre-virus levels,” they continued. “It is important to note, however, that while the outlook is relatively optimistic, there remains a great deal of uncertainty surrounding the effect of new virus outbreaks, the potential for another round of federal stimulus, overall employment conditions.
“Given these unknowns, a heightened degree of market volatility should be expected,” J.D. Power Valuation Services added.
Wholesale auction sales reached a bit of a slow patch at the end of summer.
The week ending Sept. 13 marked a decline in auction sales volume of vehicles up to 8 years in age, according to a Used Market Update report from J.D. Power.
Specifically, there were 86,000 units wholesaled that week, down from 88,000 during the week ending Sept. 6 (the latter being a revised figure from what J.D. Power had initially reported, because of lagged sales records, it said.)
The figure for the week ending Sept. 13 was also down 8% from typical figures for this particular week, J.D. Power said.
Breaking the week down by segment, mainstream classes saw sales fall by 14% on average, and the majority dipped from 10% to 16%. Meanwhile, there was a 13% average decline for premium segments, whose results varied, J.D. Power said.
After spending much of the late spring and early summer with weekly auction sales numbers of at least 100,000 units, the wholesale market has now spent several weeks with numbers below 100,000 units, a J.D. Power graph shows.
In its COVID-19 Market Insights report from last week, Black Book noticed a similar pattern.
The company said dealers have scaled down wholesale buying, so there has been a slowdown “for several weeks” in auction sales volume.
Black Book also indicated that many dealers are “still showing post-holiday buying restraint” following Labor Day.
“Sales rates this past week were consistent with the week before Labor Day as dealers were selective in what they replaced on their lot,” Black Book said in the update, which was released Sept. 15.
The company added: “Much of remarketers’ best inventory has already been sold. The decrease over the last several weeks in sales rates is not only attributed to caution by dealers on the amount of used inventory they are purchasing, but also due to the available selection of higher quality units for buyers to choose from being diminished.”
Through April, the auction volume of vehicles 5 years old or newer has climbed 6.5% in 2019, a year expected to be the peak in supply for this age group of vehicles.
That’s according to the latest Guidelines report from J.D. Power Valuation Services, which said auction volume of vehicles 5 years old or newer is at 1,401,606 units through April.
In April itself, auction volume for this group was up 8.1% year-over-year, despite a 5.3% dip from March, the report said.
For full-year 2019, J.D. Power is projecting approximately 3% growth in auction volume for vehicles 5 years old or less, followed by a plateau in the following two years.
“The anticipated increase will be fueled by increases in off-lease volume,” analysts said in the report. “Retail, rental and commercial volumes are also expected to increase in 2019, however, not nearly to the same degree as off-lease volume.”
SUV strength
The SUVs are showing the most growth in auction growth year-to-date for this age group, including the compact SUV, whose volume is up 30.2% at 248,749 units, J.D. Power said.
The compact SUV had the second-highest year-to-date auction volume growth of any segment cited in the report. Topping the list was the midsize pickup (up 32.8% at 18,911 units).
Among other SUV segments:
- Large premium SUVs are up 25.7% at 12,986 units
- Compact premium SUVs are up 25.6% at 32,623 units
- Midsize SUVs are up 14.6% at 156,438 units
- Midsize premium SUVs are up 7.7% at 40,455 units
- Large SUVs are up 4.2% at 24,414 units
Commenting on SUVs leading the auction volume gains, J.D. Power said: “This is a trend that will continue as more of these models are sold on the new side of the market.”
13 of 19 show auction volume increase
There were 19 segments included in the J.D. Power data set, only six of which showed declines in year-to-date auction volume of vehicles 5 years old or newer.
Those were:
- Midsize vans: down 18.0% at 41,215 units
- Sporty cars: down 13.0% at 24,311 units
- Large premium cars: down 10.1% at 7,315 units
- Midsize cars: down 8.5% at 238,592 units
- Large vans: down 7.7% at 7,031 units
- Small cars: down 2.7% at 67,007 units
UPDATE: Story reflects updated numbers from Cox Automtoive for 2017 total volume.
What Cox Automotive described as the “total volume of wholesale requiring disposal” will reach a peak this year.
Specifically, 16.6 million units are projected to be wholesaled, up from 16.4 million units last year, 15.9 million units in 2017 and 15.5 million units in 2016.
It is expected that 9.6 million of those vehicles will be wholesaled at physical auctions this year, Cox Automotive said, down from 9.8 million in 2018 and 10.0 million in 2017. In 2016, 9.9 million units ran at physical auctions.
The company is expecting an increase in upstream volumes (offsite and online sales) and dealer-to-dealer volumes.
Here’s how that shakes out:
— Commercial direct-to-consumer: 700,000 (same as 2018, but up from 600,000 in both 2017 and 2016).
— Direct-to-dealer/dealer-to-dealer: 4.9 million (up from 4.7 million in 2018, 4.3 million in 2017 and 4.1 million in 2016).
— Offsite/online: 1.4 million (up from 1.2 million in 2018, 1.0 million in 2017 and 900,000 in 2016).
“Like 2018, this year is poised to be a great year for offsite digital volume growth,” Cox Automotive analysts said in a Data Point report this week. “That does not mean traditional auction volume will collapse, but growth in the flow of vehicles will favor non-traditional channels and not the physical lanes.”
There are a number of elements at play when looking at the sources of wholesale vehicles.
Off-lease volume growth is “limited” and expected to occur predominantly in the first half of the year, Cox Automotive chief economist Jonathan Smoke said during Friday’s Q1 Manheim Used Vehicle Value Index call. This would likely be followed by year-over-year decreases in the back half, he said.
Likewise, over at Edmunds, analysts said in the company’s Used Vehicle Outlook that off-lease volume should peak this year.
“Lease returns have been on the rise but will top out this year with 4.3 million expected to come off lease,” Edmunds said in the report.
Most other sources of wholesale volume should see modest movement either direction this year, Smoke said.
With dealer consignment, which is declining, Cox Automotive explained that given the strength in retail used-car demand, dealers aren’t wholesaling as much.
“Dealers want to retail as many of the units as they get themselves on trade, so they’re not having to wholesale as much,” Smoke said during the call. “Plus, the rise of dealer-to-dealer platforms, including our own Manheim Express, is part of that transition, too.”
In fact, after an estimated 39.5 million retail used-car sales in 2018, Cox Automotive is forecasting 39.5 million used-car sales again this year, followed by 39.2 million in 2020.
Even though the retail used-car is set to “peak into a plateau,” this year should still be the “strongest used environment of this expansion,” Cox Automotive manager of economic and industry insights Zo Rahim said during a conference call on Cox Automotive’s Q1 Market Review.
Another factor: repossession volume, which should climb only a bit, Smoke said. Cox Automotive pointed out in the Data Point report that, “Repossessions have only slightly increased even with record amounts of outstanding loans as defaults remain low with very low unemployment and higher disposable income.”
And on the rental car side of consignment, Cox Automotive anticipates “slight gains,” Smoke said, which is reflects “units that are new bought into rental are pushing older units out, and we’re seeing some stability in the mileage and that implies consistency on that end.”
Smoke is also seeing rental companies choose to sell more rental risk vehicle direct-to-consumer.
He said that “a smaller percentage of rental units are actually ending up in the wholesale market in either a digital or physical platform, because all the major rental car companies have had aggressive strategies about selling direct retail to consumers.
“And that’s actually a key reason why we keep emphasizing the statistics on the rental composition; essentially the units are much more retail ready and friendly to the retail market," he said, “and in fact, they are buying with retail in mind, giving them the ability to sell those vehicles in their own stores, assuming retail demand continues to be strong.”
