Cox Automotive provides context to complex August wholesale trends
Cox Automotive experts tried to put some seasonal context when explaining the latest movements of the Manheim Used Vehicle Value Index and other parts of the wholesale market.
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Lane watch: Ida aftermath adds to ingredients keeping prices high
During the week that closed during the middle of the Labor Day weekend holiday, Black Book noticed that 15 of the 22 vehicle segments that analysts track generated gains in wholesale values.
And with two regions trying to rebound from Hurricane Ida, Black Book doesn’t see prices making a major decline anytime soon.
Newest Black Book index barely misses another record
So much for an extended reprieve from soaring wholesale prices.
Black Book reported on Tuesday that its Used Vehicle Retention Index for August nearly hit a new record for the second time in the past three months.
Wholesale car market shows strength in prices & sales rates last week
The wholesale used-car market showed some muscle last week, both in terms of prices and sales rates at the auctions.
According to Black Book’s latest Market Insights report, car values reversed course and showed an increase last week, while the depreciation in truck segments was less than a third of what it was the prior week.
Looking at week-over-week wholesale price changes for 2- to 8-year-old vehicles, depreciation in the overall wholesale market …
Kontos: Wholesale vehicle prices have moderated, but still ‘historically high’
Signs of autumn are abound, what with college football kicking off and pumpkin-flavored beverages now appearing in coffee shops and grocery stores.
But it's still August, still summer and still ridiculously hot.
You might say the same about the wholesale vehicle market.
Used-vehicle prices have now declined sequentially for two straight months, but they’re …
Experts see used sales ticking up in August with wholesale values gradually softening
With the month’s end in sight, experts from Cox Automotive, J.D. Power and TrueCar shared their expectations for August used-vehicle and new-model sales as well as how wholesale prices and residual values are trending.
Beginning first with TrueCar’s used-vehicle sales forecast, analysts project dealers retailing 3.7 million units in August. While that’s roughly the same amount as July, the prediction represents a 6% lift from a year ago.
The projected rebound would reverse what the industry produced in July.
According to Cox Automotive estimates, total used-vehicle sales decreased 18% year over year in July. Analysts determined the seasonally adjusted annual rate (SAAR) of sales declined to 36.9 million, down significantly from 44.8 million last July, which they called “a strong used-vehicle sales month, the early days of the initial pandemic recovery.
Cox Automotive noted the July used SAAR also was down compared to 39.0 million in June.
Total used-vehicle sales volume last month was estimated at 3.1 million, down from 3.2 million in June, Cox Automotive added in an online Data Point.
What dealers are having to pay to obtain that used inventory continues to be a challenge that’s been intensified with potential buyers looking to the used department to satisfy their vehicle wishes because of low new-model selection. Jonathan Banks, vice president of valuations services at J.D. Power, addressed that part of the automotive landscape.
“In August, used vehicles continue to help fill the gaps on dealer lots left by low levels of new inventory. In the wholesale marketplace, dealers are competing fiercely for a finite amount of available used units which is ultimately helping keep wholesale prices near record levels,” Banks said.
“So far in August, wholesale prices for units up to eight years in age have been flat to up slightly, while overall wholesale sales are trending nearly 29% lower than during August 2019,” he continued.
“We still expect wholesale prices to gradually cool as the market moves into the fall, however, a certain degree of volatility should be expected as the industry continues to work through supply-related challenges,” Banks went on to say.
Continuing the used-vehicle conversation was Eric Lyman, who is senior vice president of ALG. Lyman tied together his latest observations on residual values with what’s happening on dealer blacktops nowadays.
“The recent cooling in the used market is more than just end of summer seasonality, it signals the start of an extended gradual decline in vehicle values that will play out over the next 18 months and bring residual values closer to pre-pandemic levels,” Lyman said.
“Fortunately, pent up demand, fewer late model year vehicles in the used supply chain and sustained, but tempered, economic recovery will result in residual values that will continue to be above historical norms,” he continued.
“ALG’s current full-year residual outlook for 2021 model-year vehicles returning in 2024 calendar year is 50.6% of MSRP. This is about one percentage point above the pre-pandemic average of 49.7% of actual 3-year-old retention from 2015-2019,” Lyman went on to say.
New-vehicle inventory insights
Thomas King, president of the data and analytics division at J.D. Power, said franchised dealers currently have about the same number of new vehicles on their lots in August as they did in July. King pegged the figure at approximately 942,000 vehicles in inventory available for retail sale, compared with roughly 3.0 million in inventory two years ago.
“Although inventory is arriving at dealers daily, it is simply replacing the vehicles being sold, preventing dealers from increasing inventories to a level necessary to support a higher sales pace. This means the sales pace is being dictated by production levels rather than actual consumer demand,” King said.
When new models are delivered to franchised dealers, J.D. Power pointed out that they sell quickly.
This month, J.D. Power indicated more than 49% of new vehicles will be sold within 10 days of arriving at a dealership, up from 47% in July and up from only 26% in August 2019.
J.D. Power also pointed out that the average number of days a new vehicle sits on a dealer lot before being sold is on pace to fall to a record low of 26 days, the first time on record below 30 days. That’s down from 62 days a year ago, and down four days from July.
King closed his thoughts by looking toward next month that starts with the traditional retail buzz during Labor Day weekend.
“Looking forward to September, the dynamics observed in August are expected to continue with sales being constrained by available inventory,” King said. “The key question is the extent to which manufacturers can produce enough vehicles to increase — rather than maintain — inventory levels.
“Ongoing supply chain issues and recent announcements of further production cuts by several manufacturers mean that the aggregate inventory situation is unlikely to meaningfully improve in September,” he continued. “In some instances, it will deteriorate. It also means that prices and per-unit profitability will remain strong.
“Shoppers accustomed to Labor Day promotional events with large discounts on outgoing model-year vehicles will likely be disappointed by the lack of discounts and choice of vehicles. But as August demonstrates, there are plenty of shoppers willing and able to buy at higher prices with less choice,” King went on to say.
New-model sales expectations
With the inventory situation being what it is, TrueCar predicted total new-vehicle sales will reach 1,212,399 units in August, down 4% from a year ago but up 1% versus July, when adjusted for the same number of selling days.
According to TrueCar, this month’s seasonally adjusted annualized rate (SAAR) for total light vehicle sales is an estimated 14.4 million, down 4% from August 2020.
Excluding fleet sales, TrueCar is predicting U.S. retail deliveries of new cars and light trucks to be 1,077,701 units, down 7% from a year ago and about even with July.
“The chip shortage continues to be the driving force behind vehicle availability, creating the lowest average incentive spending since 2013,” TrueCar lead industry analyst Nick Woolard said. “Continued strong demand is creating an environment where vehicles are selling extremely quickly. About a third of vehicles are selling within a week of arriving on the dealer lot, compared to just 18% last year.”
Valeri Tompkins, senior vice president of OEM solutions at TrueCar, added these thoughts.
“Though new-vehicle sales continue to decline in August, some brands saw a year-over-year increase in sales. Toyota is operating extremely well considering their inventory days’ supply is roughly half the industry average,” Tompkins said.
“We will continue to see how they perform once their announced plant closures put additional pressure on production and inventory,” she went on to say.
Cox Automotive is projecting new-car sales volume to finish near 1.20 million, down 9% from last August, which had one additional selling day, and down nearly 7% from last month.
Cox Automotive noted that August’s finish would be the fourth consecutive monthly decline of 500,000 units or more since April’s post-pandemic peak pace of 18.3 million.
The supply situation will likely worsen over the coming weeks, according to Cox Automotive senior economist Charlie Chesbrough.
“Available inventory on dealer lots has been falling for months, and sales have been constrained further and further as a result. And soon the market will enter the Labor Day holiday weekend, usually one of the highest sales periods of the entire year, but with half the supply they had last year,” Chesbrough said.
Lane watch: What analysts are saying about subcompact cars & full-size pickups
Black Book analysts elaborated about subcompact cars and full-size pickups as part of their latest installment of Market Insights released on Tuesday.
The commentary came as Black Book is seeing the overall decrease in wholesale prices starting to decelerate, as values made a 0.36% decline during the week that ended Saturday.
Lane watch: 2 wholesale market streaks reach 7 consecutive weeks
The wholesale market is proving to be one streaky environment this year.
Following the unprecedented run-up in wholesale values, Black Book reported Tuesday that prices continue to trend downward, as they dipped for the seventh week in a row.
Seven consecutive weeks also represent how long analysts have seen auction sales rates below 70%. During the week that ended Saturday, they moved up from 64% to 66%, “as sellers adjusted floors in reaction to the softening market,” according to analysts.
But Black Book detailed through its latest Market Insights that sales rates haven’t been above the 70% threshold since the close of June.
All told, overall wholesale values softened another 0.52%, according to Black Book’s newest report.
“Despite the larger than seasonally expected weekly declines, values of used vehicles across all segments remain at historically high levels,” analysts said.
“Price stabilization and softening is most prevalent on average to above average mileage units,” Black Book continued. “However, strength remains for vehicles with low mileage due to the continued lack of new inventory in the market.
“Additional pockets of strength are also being reported on select models such as 2500 and 3500 level trucks and specialty vehicles such as Corvettes,” analysts went on to say.
Looking closer at volume-weighted car values, Black Book said they declined 0.58%; not quite as much as a previous week’s decrease of 0.78%.
Another streak is building in the car space, as analysts determined that prices for subcompact cars decreased for the second consecutive week. The latest movement was down by 0.91%. Earlier this year, subcompact car values rose for 25 straight weeks.
Perhaps an inkling that summertime is winding down, Black Book noticed that sporty cars sustained the largest decline at 1.19%.
Meanwhile, Black Book’s volume-weighted truck data showed the segment declined 0.48% last week; slightly less than a week earlier when the drop was 0.54%.
Going counter to the entire market are values since analysts saw increases for minivans (up 0.49%), compact vans (up 0.06%) and full-size vans (up 0.51%).
Black Book pointed out that midsize crossovers experienced the largest decline among the 13 truck segments, posting a decrease of 0.86%.
Lane watch: Insight about exactly which vehicles are seeing value declines
While it’s still noteworthy that wholesale prices continue to soften, what might be more interesting to consignors, dealers and other participants in the wholesale market are the specifics Black Book mentioned on Tuesday.
Analysts shared through the newest installment of Market Insights not only how much vehicle prices decreased, but also some details about which vehicles are declining in value most.
Black Book & Manheim indexes dip in July, remain elevated versus last year
While the Black Book Used Vehicle Retention Index declined for the first time this year, the Manheim Used Vehicle Value Index dipped for the second month in a row, showing the unprecedented ascension of wholesale prices might have finally climaxed.
Beginning with Black Book, analysts explained that as wholesale prices started to decline in July, their seasonally adjusted retention index reversed the upward trend for the first time this year and decreased to 161.8.
The movement represented a 4.2 point or 2.6% decline from June when the reading stood at an all-time high of 166.0.
However, Black Book pointed out its index currently stands 28.4% above where it was the same time last year during the recovery of the used market and after COVID-19 related closures in the spring of 2020.
“Wholesale prices peaked in June and declined every week in July, with accelerating decline in the second half of the month,” Black Book chief data science officer Alex Yurchenko said in a news release. “Inventory of new vehicles continued to drop almost daily as the chip shortage continues to cause decreases in production levels. Available used inventory stabilized in July as demand leveled off with record high used retail prices.
“We expect wholesale and retail prices for used vehicles to decline in August as COVID cases continue to increase and consumer confidence takes a temporary dip, due to worries about the pandemic,” Yurchenko continued.
The Black Book Used Vehicle Retention Index is calculated using Black Book’s published wholesale average value on 2- to 6-year-old used vehicles, as a percent of original typically equipped MSRP. It is weighted based on registration volume and adjusted for seasonality, vehicle age, mileage, and condition.
To obtain a copy of the latest Black Book Wholesale Value Index, go to this website.
Similar trends spotted by Cox Automotive
Meanwhile, the experts at Cox Automotive indicated wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 2.6% month-over-month in July. This movement brought the Manheim Used Vehicle Value Index to 195.2, down 5.2 points from the June reading of 200.4.
The newest reading is also down from the Manheim Index all-time high of 203.0 set in May. However, the July figure still represented a 23.6% increase in wholesale prices compared to a year ago.
According to commentary that accompanied the latest update, experts indicated Manheim Market Report (MMR) prices saw weekly declines every week in July with price declines accelerating through mid-month but then slowing the rate of decline over the last two weeks.
Over the last five weeks, Cox Automotive indicated the Three-Year-Old Index declined a net 3.6%. Over the month of June, MMR Retention, which is the average difference in price relative to current MMR, averaged 98.4% and ended the month close to 100%.
“This means that valuation models continue to slightly overstate market prices, but the gap is narrowing. The sales conversion rate also improved as the month progressed and ended the month at a level much more typical for the month of July,” Cox Automotive analysts said.
On a year-over-year basis, Cox Automotive also indicated all major market segments saw seasonally adjusted price increases in July.
“Vans, pickups and sport utility vehicles had the largest year-over-year performance, while the remaining car segments lagged the overall market,” analysts said. “On a month-over-month basis, all major market segments saw declines in July, with pickup trucks declining the most and sports cars declining the least.”
Also of note, Cox Automotive said the average price for rental risk units sold at auction in July climbed 6% year-over-year. But rental risk prices softened 2% compared to June.
Analysts went on to mention average mileage for rental risk units in July was at 88,000 miles, spiking 89% compared to a year ago and up 1.4% month-over-month.
