As August closed and the quality of vehicles in the lanes deteriorated a bit, the new Black Book Market Insights report showed vehicle values didn’t soften quite as much as they had earlier in the month.
Beginning with volume-weighted car data, editors determined that overall car segment values declined by 0.36 percent last week. In comparison, depreciation backed off the preceding five-week average of 0.52 percent.
Within the car segments, Black Book found that sporty and full-size car segments had the poorest weekly retention rates, decreasing by 0.81 percent and 0.60 percent, respectively. These two segments, accompanied by compact cars, were the only segments to receive steeper depreciation rates compared to the prior week, according to the report.
Taking a look at trucks, editors indicated that volume-weighted information showed overall truck segment values — including pickups, SUVs and vans — decreased by 0.25 percent last week. For comparison, the previous five-week average for truck segments came in at 0.33 percent.
Among the truck segments, sub-compact crossover values fell 0.65 percent, followed by compact luxury crossover/SUV and minivan segments, both dropping 0.50 percent.
Moving along to the anecdotes Black Book representatives picked up while at the auction, recaps from two different regions of the country noted how rougher units are rolling over the block.
“A high percentage of edgy condition vehicles appeared in the auction today. Too many cars needing paint work, and frame damage vehicles were present, which resulted in a low sales percentage,” said Black Book’s lane watcher in Massachusetts.
Down in Georgia, a similar story appeared as Black Book shared, “Attendance was normal for early fall today. There was disappointment regarding the condition of the vehicles offered and the amount of no-sales was up.”
Before talk of Hurricane Irma began to dominate the scene in Florida, two of Black Book’s representatives in the Sunshine State collected these observations.
“Retail is beginning to drag here, which is translating into more vehicles being passed on at the auction. That being said dealers continue to buy good, clean, low- mile units to fill the holes in their inventory,” the first Florida report said.
The other recap added, “Late model rental and off lease sales carried an otherwise average auction. I spoke with several dealers who are looking for clean, older vehicles with a desirable price point for their retail lots. Competition is strong for this segment of the market.”
Finally, the stories from the lanes wrapped up in the Midwest with this observation in Indiana: “Low consignment seems to have become the norm with many more buyers than sellers. Trucks continue to be scarce along with the really nice units.”
Specialty report
As Black Book does on a monthly basis, editors shared their assessments of the speciality markets. Here is the rundown:
—Collectible Cars: Editors said the collectible car auctions held on the Monterey Peninsula in mid-August were very successful, especially at the top end of the vintage exotic market.
—Recreational Vehicles: Black Book found that the auction results last month were “a bit surprising.” Editors continued with, “Towable values did exactly what we expected them to, but motorized units, which should also be declining, shot up nearly 15 percent.”
—Powersports: Editors indicated the Powersports market continues to see downward pressure on pricing in all segments as the market heads into the fall.
—Heavy-Duty: Editors summarized this segment by saying: “We’ll see if the current fairly stable value decreases hold up when new trucks start to ship and more out of service units become available.”
—Medium-Duty: Finally, Black Book surmised here that the wholesale market continues its downward trend as it inches closer toward fall. “This past month we experienced a bit more depreciation than we did in June,” editors said.
Cox Automotive chief economist Jonathan Smoke on Friday estimated vehicle losses caused by Hurricane Harvey to come in between $2.7 billion and $4.9 billion in the Houston market alone.
While that projected figure includes dealerships’ used-vehicle inventory since those units are classified as vehicles in operation, Smoke indicated that loss figure could swell even more once the damage toll of new vehicles flooded at franchised dealerships is tabulated, too.
“Our hearts go out to the people of Houston and everyone impacted by the weather,” Smoke said to open a conference call Cox Automotive hosted for the media before delving into the loss estimates.
Smoke reiterated his previous assessment that 300,000 to 500,000 vehicles are likely damaged just in Houston; the seventh market largest by population and eighth largest for vehicles in operation consisting of 5.6 million units.
“We reviewed damages numbers in both (Hurricane) Katrina and (Superstorm) Sandy, which were the most comparable storms. We looked at the reporting of wide-spread flooding, which more resembled Katrina than Sandy. We took into account the high vehicle density and the dependency on vehicles in Houston,” Smoke said.
“Therefore we concluded that 500,000 (units) was entirely possible,” he continued. “If we’re correct, it would be the worst in terms of vehicle damage in history. Sandy impacted a bigger market, but the damage was not as severe, and the vehicle density was lower. Katrina had even more severe damage but in less populated, less vehicle dense and smaller area.”
With so much damage likely to be recorded, Smoke delved into the wholesale volume and price ramifications likely ahead.
The record-setting streak for the Manheim Used Vehicle Value Index already reached three months in a row when Cox Automotive shared the latest reading on Aug. 7.
The report indicated wholesale used-vehicle prices (on a mix-, mileage- and seasonally adjusted basis) increased 0.75 percent month-over-month in July. This rise brought the index reading to 130.3, which was a record high for the third consecutive month and a 2.6-percent increase from a year ago.
The new high mark is more than 30 points above the index’s low point of 98.0 registered in December 2008.
To project what might happen, Smoke explained that he and the Cox Automotive team went back to Manheim data recorded at the time of both Katrina and Sandy.
“Basically it behaved as you would expect,” Smoke said. “If you take a step back and think, ‘OK the disaster does two things simultaneously.’ It decreases supply both in terms of what might have been on dealer lots in those locations, but also in terms of what would have been potential supply; cars that people might have been trading in or otherwise selling. And at the same time, it increases demand because people are needing to replace their vehicles in a very short period of time that otherwise would not have been remotely considering a vehicle purchase.
“What we’ve observed is you see a break in the pattern in terms if there had been continued growth in supply in the wholesale channel, sudden in the non-salvage you see flat or declining volumes for a couple of months. And related to that you typically see price strength, which makes complete sense. If there is tighter supply and stronger demand, that would amplify prices for a two to three months following the storm,” he continued.
“Wholesale prices have been really strong for the last three months,” Smoke went on to say. “The indicator in August was that trend was continuing so that means wholesale prices are very likely to be strong through the end of the year. Before I was sort of on the fence about whether or not that trend could continue indefinitely or whether it would reach a place and plateau. Now this effect on supply, it’s likely to remain at least as strong as we’ve been seeing through the end of the year.”
And as dealers look for inventory to meet rising consumer demand, the salvage space is likely to become even busier as Harvey-damaged units make their way into that wholesale segment.
“No question this is the biggest event in history in terms of the total volume of vehicles damaged,” Smoke said. “This is going to have lingering effects on the wholesale market for some period of time in terms of increased volumes that should be going to salvage and working their way through the system. But also in terms of the industry and consumers having to deal with their own due diligence in tracking vehicles that could have been damaged but didn’t get properly identified as damaged, and therefore, salvage.”
Editor’s note: Watch for a future report from Auto Remarketing that will highlight analysis from experts at Autotrader and Kelley Blue Book about how the damage from Hurricane Harvey will impact retail sales.
Both portions of the RVI Group’s latest analysis of wholesale prices showed an upturn from June to July but softening versus year-ago figures.
The RVI Used Vehicle Price Index (Real) increased from June to July by 0.9 percent. However, when compared to July of 2016, prices were down by 3.8 percent.
The firm’s Used Vehicle Price Index (Nominal) also climbed by 0.9 percent in July when compared to June. When compared to July of last year, the index fell by 1.4 percent.
Analysts indicated used-vehicle prices for most segments are down on a year-over-year basis.
“Prices of full-size pickups increased slightly while prices of compact cars and full-size sedans show greater declines on a year-over-year basis than the rest of the market,” they said in the analysis.
RVI Group pegged the decline for compact cars and full-size sedans at 6.6 percent and 8.3 percent, respectively.
Also of note, the report noted a 5.4-percent year-over-year price decline for both midsize SUVs and small sedans.
Elsewhere in RVI Group’s latest analysis, the firm noted that on a year-over-year basis, new-vehicle prices ticked 0.12 percent higher in June.
Analysts added that new-vehicle transaction prices, on a seasonally adjusted basis decreased by 0.3 percent from May to June.
Finally, RVI Group pointed out that gas prices fell in July to $2.41 percent gallon from $2.46 per gallon in June. In July, gas prices fell by 1.9 percent from the previous month. On a year-over-year basis, prices were up by 2.9 percent.
Along with the perspective of an auction owner from the West Coast, the latest Black Book Market Insights report took a look at comparing the weekly retention strength of cars and trucks dating back to the beginning of the year.
Editors found that cars have started to see larger depreciation since late spring after a stronger-than-expected tax season earlier in the year.
“Clean quality used vehicles with low mileage remain in demand, however as expected, the overall wholesale market continues to soften as we enter the last month of summer,” Anil Goyal, Black Book’s senior vice president of automotive valuation and analytics, said in a news release.
According to volume-weighted data, Black Book indicated overall car segment values decreased by 0.57 percent last week, with six of nine segments depreciating more than half a percentage point.
Editors noted the midsize car and luxury car segments declined the most: 0.87 percent and 0.82 percent, respectively.
Turning back to volume-weighted information, Black Book determined the overall truck segment values — including pickups, SUVs and vans — softened by 0.28 percent last week. The report also mentioned only three truck segment received steeper weekly depreciation rates than that of the prior week.
Editors pointed out small pickups declined the most among truck segments, dropping by 0.71 percent. That segment also has the highest four-week depreciation rate with an average of 0.66 percent.
Moving along to what Black Book’s personnel in the lanes reported back to headquarters, an auction owner in Washington shared this assessment.
“The market has been really solid as of late. The slight shortage in certain sectors, combined with good retail activity has caused a bit of an uptick in auction activity. Across all segments, it seems that demand is really strong right now,” the owner said.
Two other auction reports originated out of the Midwest, with the first one coming out of Indiana.
“As has been the case all summer the consignment was down. The demand seems high so the prices are holding steady even with the huge truck rebates,” the lane watcher in the Hoosier State said.
Meanwhile, out of Ohio, Black Book’s representative stated, “Miscellaneous credit unions and dealer consignment made up a good portion of the auction with pretty good results. Dealers have a positive attitude about the late summer market conditions we are experiencing.”
Sliding to the South, the story coming out of Tennessee was, “Pickup trucks were strong today and it appeared that all of the vehicles floored under $10,000 did exceptionally well.”
Wrapping up in Florida, Black Book’s observer noted, “The finance lanes did well today but the dealer consigned vehicles had a tough time of it.”
As both car and truck values softened at a pace similar to what’s been seen during the past month, Black Book’s Anil Goyal and the company’s representatives at the auctions are noticing a clear strategy dealers are using nowadays as they walk the lanes or watch the online sales.
“Dealers continue to remain interested in clean units from auctions to make up for a lower number of good trade-in vehicles,” said Goyal, senior vice president of automotive valuation and analytics, in the latest Black Book Market Insights report.
Looking at the volume-weighted data, editors determined that overall car segment values decreased by 0.45 percent last week, similar to the average weekly decrease of 0.48 percent in values over the previous four weeks.
Black Book indicated that the subcompact car and luxury car segments declined the most by 0.76 percent and 0.71 percent, respectively.
Over on the truck side, the volume-weighted data showed that overall truck segment values — including pickups, SUVs and vans, softened by 0.39 percent a week ago, not far off of the average weekly dip of 0.33 percent in values over the previous four weeks.
Editors pointed out that luxury crossover/SUVs in the midsize, compact and subcompact sizes declined the most among truck segments by 0.73 percent, 0.70 percent and 0.70 percent, respectively.
Turning back to what Black Book’s observers saw at the auction, the anecdotes back up what Goyal assessed about the overall market.
Out of Florida, the story was, “Dealers only buying vehicles to fill holes in their inventory.”
A similar situation played out in Tennessee as Black Blook’s representative said, “A good sale today and a great day for pick-up trucks. There seemed to be more clean vehicles being represented today, which was a welcome change for dealers struggling to get quality trade-ins on their lots.”
Two reports surfaced out of Pennsylvania. The first recap stated, “Attendance was better in the lanes today, but the majority of the sales were via the Internet.” The other one noted, “A lower sold percentage as dealers are anticipating lower prices around the corner.”
Finally, the observations from the lanes wrapped up in Massachusetts where lane watcher said, “Overall, a typical August market here with some expected anxiety preceding another fall season.”
Along with looking ahead to how prices might move in August, analysts at J.D. Power Valuation Services determined that July’s wholesale depreciation matched historical trends.
According to the latest issue of Guidelines, analysts reported that the wholesale prices of used vehicles up to 8 years in age fell by 2 percent in July, mirroring what J.D. Power Valuation Services expected to happen. During the past five years, analysts pointed out that July movements regularly have come in at 2.1 percent, leaving the latest development in line with those historical trends.
As a result of July’s reading, the J.D. Power Valuation Services’ Used Vehicle Price Index dipped slightly by 0.7 percent to land at 110.4. What analysts classified in the report as the “consistent chipping away of prices month-over-month” has pushed the index 7.1 percent lower through July as compared to the first seven months of last year.
For reference, the report noted the index reading in July of last year sat at 119.1.
When it comes to what might happen in August, David Paris, executive analyst at J.D. Power Valuation Services, shared the firm’s projection.
“This August, we forecast wholesale prices of vehicles up to 8 years in age to drop about 2.6 percent, which would be the same as August 2016,” Paris said. “For the year, we believe used prices will decline by 6.5 percent, which is 2.5 points worse than 2016’s 4-percent loss.”
The report added that looking even further down the road, J.D. Power Valuation Services is expecting that wholesale prices should decelerate to about 3 percent in 2018.
More details on July price movements
Drilling down into J.D. Power Valuation Services’ data, the report showed car prices moved most significantly when looking at information at the segment level.
“This is a continuation of the now long-running trend where mainstream car losses outpace those of their truck and SUV counterparts,” analysts said.
Three car segments in particular were among the greatest declines in the report as compact cars, midsize cars and large cars softened by 3.4 percent, 3.1 percent and 2.8 percent, respectively.
Analysts pointed out that subcompact car values performed a bit better than that group (declining by 2.2 percent) in part because of tighter supply of these units. The report indicated supply of late-model subcompact cars is off by 8.1 percent year-to-date.
The report went on to mention losses for large utilities were more pronounced in July (down 1.5 percent) versus the same month in 2015 when the value of these units actually ticked up 0.6 percent, and a year ago when losses only registered in at 0.3 percent. Analysts noted what could be impacted this segment is a surge in late-model supply, which is 11.8 percent higher year-to-date.
Also of note, analysts mentioned prices for large pickups remained strong in July as values for units in this segment haven’t fallen more than 1 percent during a single month since last December.
While it appears dealers are having trouble fulfilling one specific segment on their inventory shopping lists, Black Book’s latest price update indicated dealers aren’t paying quite as much when they do find the units they want.
The newest Black Book Market Insights report showed an increase in wholesale vehicle depreciation, especially in the car segments. Although cars had a higher depreciation percentage overall, editors noticed the compact van category for trucks saw the highest depreciation out of all vehicle categories with a 1.74 percent decline in value.
“The wholesale vehicle market experienced broad declines last week across most vehicle segments,” said Anil Goyal, Black Book’s senior vice president of automotive valuation and analytics, one of the many experts set to be a part of this year’s Used Car Week, which runs from Nov. 13 through 17 in Palm Springs, Calif.
According to volume-weighted data, editors determined overall car segment values decreased by 0.58 percent last week, higher than the average weekly decrease of 0.43 percent in values spotted during the previous four weeks.
Black Book found that the prestige luxury car, sporty car and sub-compact car segments declined the most by 1.03 percent, 0.89 percent and 0.78 percent, respectively.
Again considering volume-weighted information, editors reported that overall truck segment values — including pickups, SUVs and vans — softened by 0.40 percent last week; a figure more than than the average weekly decrease of 0.28 percent in values registered in the previous four weeks.
As previously noted, compact vans declined the most at 1.74 percent, while the small pickup segment wasn’t far off with a drop of 1.46 percent.
So now that we know the movements associated with what dealers are paying, what about what they’re seeing coming down the lanes and how they want to stock their lots? The anecdotes Black Book’s representatives at the auctions provided gave a pretty clear picture of what’s happening nowadays.
Starting in Tennessee, Black Book’s observer said, “Used-vehicle retail remains OK, but dealers are struggling to get nice trades. They are all in need of quality used pickup trucks, which are especially difficult to find.”
Down in Florida, the truck story continued with the lane watcher saying, “We had a good auction this week. There were more no-sales on trucks as consignors were holding out for ‘home run’ money due to the low supply.”
While not specifically mentioning trucks, Black Book’s personnel stationed in Colorado reported, “Inventory is low at the auctions so, in turn, the conversion percentages are good.”
Continuing out West, the story in California was, “The no-sales here were mostly due to over-valued higher mileage units.”
Wrapping up in Michigan, lane observers heard from dealers about another segment in the sales calendar as the recap indicated, “We are starting to see the annual back-to-school activity in the lower-priced units. This typically lasts for three or four weeks here.”
J.D. Power said Monday morning it has rolled out a Used Vehicle Price Index Service that provides a monthly index monitoring current wholesale used-car prices and forecasting future movement.
The analysis is done on both an industry and segment level.
The company said it can forecast prices as far out as two years.
“Lenders, manufacturers, insurers, equity analysts and many others with an interest in the automotive industry depend on insights from J.D. Power to make better decisions affecting their bottom line,” Mike Stanton, vice president of valuation services at J.D. Power, said in a news release. “By offering this highly sought-after service, customers will have a new analytical tool to improve profitability.”
In its news release, J.D. Power outlined the key service features of the index service as follows:
- Insight into used-vehicle price performance and how movement could impact business performance
- Index data underpinned by AuctionNet data, representing more than 80% of the nation's auction transactions from Manheim, ADESA, ServNet, ABC and key independent auction houses
- Historical index data since 1995 for models up to 8 years in age
- Forecast index data for the current year and two years ahead, providing insight into future opportunities and risks
- Industry- and segment-level indices
J.D. Power Valuation Services vice president Jonathan Banks added in the release: “Our new used-vehicle price index service can help customers mitigate risk. With the service's forward-looking capability, the guesswork of what could potentially happen to a portfolio or proposed decision is almost taken out of the equation.”
More information on methodology, producing the index, report customizations, service levels and pricing can be found here.
Along with an update on the specialty markets, Black Book also shared the significant difference in how much car prices depreciated last week versus trucks.
The latest Black Book Market Insights report indicated cars overall decreased in value by 18 percent more than trucks. Out of all vehicle categories, editors noticed midsized cars saw the highest depreciation at 0.75 percent.
“Mixed reactions noted in the auto auctions across the nation as the market tries to find direction going forward after a resilient performance in the first two quarters,” said Anil Goyal, senior vice president of automotive valuation and analytics at Black Book.
Examining volume-weighted data, editors found that overall car segment values declined by 0.46 percent last week. In comparison, the market values had decreased on average by 0.35 percent per week during the previous four weeks.
In car segments, Black Book noticed midsize car and compact car segments performed the worst, decreasing by 0.75 percent and 0.70 percent, respectively.
Looking again at volume-weighted information, editors determined overall truck segment values (including pickups, SUVs and vans) softened by 0.28 percent last week, slightly worse than the average decrease of 0.22 percent per week registered during the previous four weeks.
In truck segments, Black Book said sub-compact crossover values dropped the most by 1.23 percent.
As Goyal referenced, Black Book representatives watching action in the lanes shared a wide array of anecdotes of how dealers are tackling the inventory challenges.
First up from Georgia, the lane observer said, “Attendance and consignment were both good but there was a lot of no-sales. The reps were not willing to drop their floors enough to record the sale.”
Up in Massachusetts, a similar scene played out as Black Book’s attendee indicated, “The market is softer here when compared to the prior weeks. Consignors had challenges selling their inventories.”
Over in Michigan, the representative described how at least one segment left the auction on an upbeat note. “Sellers were the happy group here as buyers were hitting the bids a few extra times in order to secure inventory.”
The report from Colorado alluded to how dealers are tapping into their floor-plan resources as “Dealers need good, clean cars and are paying what they have to in order to get them.”
And finally the report out West was perhaps the most negative as an observer in Washington said, “The market seemed to take a step back today. Not only was the consignment lower, but the overall interest in the vehicles was also sub-par.”
Update on the specialty markets
Black Book’s latest report also contained information about the specialty markets. Here is the rundown:
—Collectible cars: Black Book noted the auctions held in late June and July all had “very respectable” showings, but editors added, “Everyone in the hobby has turned their attention to the automotive super week that takes over Pebble Beach and the Monterey peninsula in mid-August.”
—Recreational Vehicles: Black Book reported the values of both motorized and towable RVs increased at auction last month, although the sales volumes were down.
—Powersports: Every segment in the Powersports market is down, according to editors, who added, “Even a few that normally show signs of life this time of year.”
—Heavy Duty: Black Book explained the reasons why some trucks do better than others is often hard to pinpoint, but age, miles and condition are the big factors.
—Medium Duty: Editors acknowledged the wholesale market continues its downward trend as the industry eases through the summer months. “This past month we experienced a bit more depreciation than we did in June. Auction prices continue to drop on most of the units we track,” they said.
The record-setting streak for the Manheim Used Vehicle Value Index reached three months in a row when Cox Automotive shared the new reading on Monday.
The report indicated wholesale used-vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 0.75 percent month-over-month in July. This rise brought the index reading to 130.3, which was a record high for the third consecutive month and a 2.6-percent increase from a year ago.
The new high mark is more than 30 points above the index’s low point of 98.0 registered in December 2008.
On a year-over-year basis, analysts noticed prices for mid-size cars produced the largest decline in July, softening by 0.9 percent.
Each of the other five vehicle categories analysts track for the index registered price gains, with pickups leading the way at 7.8 percent and vans not far off at 5.5 percent.
Prices for CUV and SUVs along with luxury cars ticked up by nearly similar rates at 1.9 percent and 1.8 percent, respectively. Even compact cars edge slightly higher as prices for those units ticked up 0.2 percent year-over-year.
“Wholesale market values continue to show strength despite concerns that increasing off-lease maturities would result in a used vehicle supply glut and rapidly declining used-car values,” Cox Automotive chief economist Jonathan Smoke said in his commentary associated with the latest index update.
“Instead, used-vehicle sales are growing, driven by double-digit year-over-year growth in sales of vehicles less than 4 years old. Increased demand is absorbing the higher supply of newer vehicles.”
Analysts also mentioned that rental risk pricing improved as volumes dropped.
Cox Automotive determined that the average price for rental risk units sold at auction in July decreased by 2 percent year-over-year in July, which was a significant improvement over June. Rental risk prices were up 3 percent compared to June.
Average mileage for rental risk units in July (at 41,400 miles) was 2 percent below a year ago, according to analysts.
Smoke closed his commentary by emphasizing the U.S. economy “remains strong.”
According to the first estimate from the Bureau of Economic Analysis, the U.S. economy grew 2.6 percent in the second quarter.
“Consumer spending on both durable and nondurable goods drove most of the growth in the second quarter,” Smoke said. “Consumer confidence strengthened to the second-highest level in 16 years in July (only higher month was March).”
