Car values are still depreciating at a faster rate than their truck values, but the gap has narrowed significantly in the past year, according to Black Book data.
From Dec. 1, 2014 to Dec. 1, 2015, car values depreciated 16.7 percent, versus 8.4 percent depreciation for trucks — a difference of more than 8 percentage points.
But in the 12 months since Dec. 1, 2015, car values have depreciated 19.1 percent, while trucks have depreciated 14.7 percent — a difference of less than 5 percentage points.
In a phone interview with Auto Remarketing last week, Black Book’s Anil Goyal attributes the slimmer gap to three things.
First, more entrants on the truck market has led to greater competition on the new-vehicle side, leading to higher incentives, which tends to downwardly impact used prices.
Next, the gap between used-truck and used-car values had climbed to an unsustainable level, he said.
Goyal — who is senior vice president of automotive valuation and analytics at Black Book — gives the example of compact crossovers and compact cars.
A year ago, the value gap between a 2- to 6-year-old compact crossover and a 2- to 6-year-old compact car was around $5,300, he said. Now the used compact crossovers are less than $5,000 more expensive than compact cars.
Subcompact crossovers are another segment where the gap has started to come down.
“If you look at a subcompact crossover one year ago versus a subcompact car, that gap was about $5,200,” he said. “And now it’s down to $4,300.”
Folks just may not be willing to shell out an additional $5,000-plus to get a subcompact crossover instead of a subcompact car.
Goyal adds, “For that demographic who’s looking to buy a smaller vehicle, that gap becomes much harder to swallow.”
The third reason? Changes in supply over the past 12 months.
“The supply was very, very, very tight a year ago on any truck segment,” Goyal said. “And that supply is starting to ease. It’s still lower than the car segments, but it’s starting to ease as more and more lease returns are coming back.”
Looking forward, will the depreciation narrow further in 2017?
Goyal said he believes it will continuing shrinking a bit.
“In the next two or three years, I don’t expect the truck depreciation to be higher than cars, because there is still going to be more and more supply coming back from the car side,” he said. “But as the new production continues to shift more towards trucks and the incentives are going to be driven from that segment, I do see the gap (continuing) to narrow a little more until there is about a 5-percentage-poitn difference.”
Some segments like full-size pickups are driving this, he said.
A 2014-model-year full-size today is retaining about 62 percent of its MSRP, Goyal said. Compare that to the three-year-old retention level (roughly 54 percent) in the overall market.
“There’s been more incentives now coming through on the pickup side” he said. So much so that Ford, Goyal pointed out, announced production and incentives cuts.
“You’re starting to see that there is more inventory and those high retention values are not sustainable,” Goyal said. “I see those retention values coming down, which will eventually cause depreciation to go up on some of those segments, which are holding up the truck depreciation so well.”
While prices for truck decreased last week by a higher figure than Black Book had seen in a month, auction observers watched more vehicles of all segments roll over the block without the hammer falling.
Multiple Black Book personnel reported that no-sales moved higher last as November closed and December began. A lane watcher in Texas told Black Book Market Insights that, “The market trend here is slow, plenty of attendance and consignment but a lot of no-sales.”
Over in Nevada, a similar scene unfolded as Black Book personnel reported back that “Demand seems to be on the older model mid-size sedans and SUVs but still a high number of no-sales.”
In Washington, the market was described as “soft” but the Black Book representative indicated “Vehicle volume is high in this location.”
However, not everywhere were dealers and wholesalers thinking about shopping on Amazon rather than purchasing what was coming down the lanes.
For example in Arizona, the story from Black Book was, “Steady market here with low mileage clean cars doing well.” And in Tennessee, “A good sale today with trucks and SUVs both in strong demand.”
Furthermore from Illinois, the auction observer reported, “Sales have been strong here over the past few weeks with SUVs and midsize sedans remaining in demand.”
Perhaps playing a role in pushing demand for some of those units is softening prices, especially for trucks
Black Book reported overall, volume-weighted truck values decreased by 0.68 percent last week. The reading was higher than the average depreciation rate of 0.47 percent seen during the previous four weeks.
In truck segments, editors noticed prices in the full-size crossover/SUV, minivan and full-size van segments declined the most, dropping by 0.90 percent, 0.82 percent and 0.77 percent, respectively.
On the car side, Black Book determined overall, volume-weighted car values decreased by 0.56 percent last week. The reading was same as the average depreciation rate of 0.56 percent spotted during the previous four weeks.
In car segments, editors mentioned prices for the prestige luxury car, sporty car and full-size car segments declined the most, sliding by 0.99 percent, 0.97 percent and 0.89 percent, respectively.
“So far this year, light trucks have performed better than the car segments in value retention. However, last week we saw a different trend with larger drops in truck segments,” said Anil Goyal, Black Book’s senior vice president of automotive valuation and analytics.
Looking at all of November’s price activity, Black Book indicated that overall vehicle depreciation came in at 2.3 percent.
“Although crossovers and SUVs have done well, the smallest versions of this segment have underperformed,” editors said. “Sub-compact luxury and mainstream crossovers experienced the most depreciation last month at 3.5 percent or higher.”
Cox Automotive chief economist Tom Webb shared his theory as to why wholesale used-vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) declined 1 percent in November.
Webb explained that what brought the Manheim Used Vehicle Value Index to a reading of 124.7 for November — a decrease of 0.3 percent from a year ago — might not have stemmed from what he and other industry watchers have observed for much of 2016.
“Although the growing wholesale supply of used vehicles has been the most discussed story of the year (and rightly so), the weakness in November wholesale pricing was probably more related to new-vehicle market activity — channel stuffing and higher incentives,” Webb said. “To compete, the used-vehicle market needed to adjust prices quickly as inventory turn remains paramount.
“If our theory for the price movement is correct, manufacturers may have more control over future residuals than currently believed,” Webb continued. “They will, however, need to better balance new vehicle volume objectives with already assumed end-of-term residual projections.”
Among the vehicle segments Manheim tracks for its index update, prices for the two car segments that have been sagging for much of the year dropped again in November. Prices for midsize cars dipped by 1.8 percent while prices for compact cars sunk by more than trip that amount (6.0 percent).
“Every time used compact and midsize cars seem to find a bottom in wholesale pricing, it proves to be a false bottom,” Webb said. “Such was the case in November as these two segments continued to lead the overall market downward.”
Meanwhile, prices for luxury cars ticked up 1.0 percent joining prices for vans and pickups, which also moved higher by 3.2 percent and 3.8 percent respectively. Manheim noticed prices for SUVs and CUVs softened by just 0.8 percent in November.
Adding a little bit more color to the wholesale pricing movements, Webb said, “An analysis of changes in average mileage by price tier suggests that the weakness in wholesale pricing has moved down the price scale. In November, the softness was most pronounced in the $6,000 to $8,000 price range.”
Webb also mentioned that rental risk prices continue to ease.
In November, Manheim indicated auction prices for rental risk units sold at auction (adjusted for broad shifts in market class and mileage) declined 0.6 percent from October and 4 percent from a year ago. However, on an unadjusted basis, the index report pointed out prices rose to a new high.
“Auction volume was significantly higher in November as rental companies were able to off-load units no longer needed in the loaner car or insurance replacement segment,” Webb said. “The average mileage on rental risk units sold in November was 16 percent lower than a year ago.”
Retail markets
As he often does, Webb touched on November sales results in both the new and used spaces.
As was reported previously by Auto Remarketing, Webb highlighted that certified pre-owned sales jumped 10 percent in November after two months of year-over-year declines. Full-year CPO sales are now set for a record of more than 2.6 million units.
“Although total used-vehicle sales for franchised and independent dealers have yet to be released for November, channel checks indicate that they increased again during the month,” Webb said. “The availability of retail financing remains supportive of the used-vehicle market.”
On the new-model side, Webb recapped that new car and light duty trucks sold at a seasonally adjusted annual selling rate (SAAR) of 17.8 million in November. He said that result came “at a cost.”
Webb said, “A richer mix (i.e., more trucks and crossovers) boosted average transaction prices, but the incentive spend grew much faster. And despite the strong sales, dealers ended the month with higher-than-desired inventory levels. As such, the marketing push will likely continue in the short term.”
Typically, compact luxury crossovers/SUVs have retained their values well.
In fact, a graph of Black Book data going back to January 2013 shows that 3-year-old vehicles in this segment have maintained retention above 54 percent in recent years, sometimes as high as roughly 63 percent.
That is, until this autumn.
According to Black Book’s latest Market Insights report, retention for 3-year-old compact luxury crossovers/SUVs fell to just over 52 percent in November, down 3 to 4 percentage points from year-ago levels.
And last week, these vehicles showed the heaviest weekly price downturn of any truck segment in Black Book’s data set (volume-weighted, 2008-2014 model years) with a 0.71-percent dip.
Midsize luxury crossovers/SUVs were second with a 0.52-percent decline.
Market-wide price trends
As far as the overall wholesale market (again, market-weighted and model-years 2008-2014), there was improvement in price last week. The dip in car segment values slowed from an average of 0.62 percent in the preceding four weeks to 0.56 percent, according to Black Book.
Likewise, truck segment depreciation slowed from 0.59 percent to 0.31 percent.
“Sales percentages were reported to have improved slightly last week with both car and truck segment values depreciating less than the trends seen in the recent weeks,” Anil Goyal, senior vice president of automotive valuation and analytics at Black Book, said in the report.
There have been 3.84 million auction sales of vehicles age 8 or younger so far this year (through Oct. 24), according to NADA Used Car Guide.
This is a 7-percent hike from the same period of 2015, and the gain for late-model volume is even stronger.
The company said in its latest Guidelines report that auction volume for cars up to 3 years old is up 10.8 percent. The highlight in that late-model class is the 2013 model-year auction volume, which has climbed 31.9 percent year-to-date due largely to off-lease supply.
On the retail side of the used-car market, Edmunds.com is calling for roughly 2.8 million used-car sales in November, which would be down from 3.1 million in October. The seasonally adjusted annualized rate for used-car sales, however, is likely to climb from 37.8 million to 37.9 million.
As far as the new-car side, Edmunds predicts that the year-to-date tally will reach 15,844,726 units by the end of this month, up ever-so-slightly from the year-ago period (15,838,458 sales)
And last year, of course, turned out to be a record year for new-car sales.
“It’s probably no coincidence that this month’s strong sales performance come at the same time that the Dow Jones Average reached an all-time high,” Edmunds executive director of industry analysis Jessica Caldwell said in a news release. “Now that the presidential election is over, shoppers have more confidence in the economy than they had just a month ago, and that gives them extra motivation to make big-ticket purchases.
“If this month’s forecast holds, December’s year-over-year sales only need to be flat to set a new annual record in 2016,” she said. “Get your popcorn ready because it’s going to be a nail-biter.”
As the wholesale industry moved closer to Thanksgiving, both prices — especially for sports cars — and bidding in the lanes noticeably softened as recapped in the latest Black Book Market Insights report.
The report noted an increase in depreciation for nearly all segments across the board as the industry gets deeper into the fourth quarter. Although most segments are seeing accelerated declines, Black Book editors mentioned compact vans stood out by holding their value steady from the previous week.
“Steeper declines, typical in the fourth quarter, continue across all segments. Sporty cars experienced the most, driven by seasonality,” said Anil Goyal, Black Book’s senior vice president of automotive valuation and analytics.
Volume weighted, Black Book indicated overall car segment values decreased by 0.69 percent last week, higher than the depreciation rate of 0.59 percent seen in the previous four weeks.
As Goyal referenced, sporty car, premium sporty car and compact sar segments declined the most by 1.22 percent, 0.84 percent and 0.79 percent, respectively.
Volume-weighted, editors determined overall truck segment values — including pickups, SUVs and vans — decreased by 0.66 percent last week, higher than the depreciation rate of 0.51 percent seen in the previous four weeks.
Black Book found that the midsize crossover/SUV, minivan and compact crossover segments declined the most by 1.30 percent, 0.99 percent and 0.77 percent, respectively.
Representatives in the lanes noticed dealer bidding dipped a bit just like prices.
Black Book’s lane watcher in Texas reported, “The retail market around this location has become very mixed which has created lower auction sales rates.”
A similar story unfolded in Tennessee where the representative relayed back to editors, noting, “The market has slowed somewhat in this area but full-size trucks still continue to lead demand.”
In Florida, “Sales have become slower here,” Black Book personnel said. “Dealers still searching for lower mileage clean history units.”
Out West, scene in California was, “Tough sale for high-line units today with many no-sales.”
And finally in Washington, “The market is soft here with four-wheel drive units bringing the most attention.”
Retail demand weakened in October while wholesale prices continued to soften.
In his latest Kontos Kommentary report, KAR Auction Services chief economist Tom Kontos asserted that weak retail demand may have been a reflection of uncertainty before the election.
For the first time this year, new vehicle sales on a year-to-date basis fell below last year’s levels.
“That indicates that 2016 may not match the 2015 record in total new vehicle sales of 17.5 million,” Kontos said. “Nevertheless, the declines should be moderate — and it’s from an all-time high.
"Now that election uncertainty is resolved, it will be interesting to see whetehr there is a rebound in retail sales."
According to ADESA Analytical Services’ monthly analysis of Whole Used Vehicle Prices by Vehicle Model Class, wholesale used prices last month averaged $10,499, which was down 2.2 percent compared to September but up 3.0 percent year-over-year.
Average prices for cars were down 1.2 percent year-over-year, while truck prices were up 5.1 percent year-over-year. But even trucks are starting to feel the impact of the softening price environment, Kontos said, with several segments showing monthly declines of greater than 4 percent.
Average wholesale prices for used vehicles remarketed by manufacturers were down 0.9 percent month-over-month but up 8.6 percent year-over-year. Prices for fleet/lease consignors were down 2.6 percent sequentially but up 1.0 percent annually. Dealer consignors registered a 3.0 percent average price decrease versus September but a 1.3 percent increase relative to last October.
According to NADA data, both franchised and independent dealers saw month-over-month decreases in retail used vehicle sales in the 14 percent to 15 percent range. For the year, however, retail used vehicle sales remain up 4.2 percent.
October CPO sales were down 0.7 percent month-over-month and down 3.2 percent year-over-year, according to figures from Autodata — but CPO sales are up 3.0 percent for the year.
Kontos provided a video commentary as well that can be seen at the top of this page or by going here.
ADESA Wholesale Used-Vehicle Price Trends
| |
Average |
Price |
($/Unit) |
Latest |
Month Versus |
| |
Sept. 2016 |
August 2016 |
Sept. 2015 |
Prior Month |
Prior Year |
| |
|
|
|
|
|
| Total All Vehicles |
$10,499 |
$10,731 |
$10,192 |
-2.2% |
3.0% |
| |
|
|
|
|
|
| Total Cars |
$8,493 |
$8,663 |
$8,596 |
-2.0% |
-1.2% |
| Compact Car |
$6,395 |
$6,495 |
$6,652 |
-1.5% |
-3.9% |
| Midsize Car |
$7,364 |
$7,518 |
$7,527 |
-2.0% |
-2.2% |
| Full-size Car |
$7,499 |
$7,608 |
$7,865 |
-1.4% |
-4.7% |
| Luxury Car |
$13,410 |
$13,769 |
$13,196 |
-2.6% |
1.6% |
| Sporty Car |
$13,057 |
$13,353 |
$13,021 |
-2.2% |
0.3% |
| |
|
|
|
|
|
| Total Trucks |
$12,423 |
$12,735 |
$11,821 |
-2.5% |
5.1% |
| Minivan |
$8,279 |
$8,383 |
$7,553 |
-1.2% |
9.6% |
| Full-size Van |
$12,683 |
$13,587 |
$12,691 |
-6.7 |
-0.1 |
| Compact SUV/CUV |
$10,465 |
$10,525 |
$10,271 |
-0.6% |
1.9% |
| Midsize SUV/CUV |
$11,115 |
$11,655 |
$10,252 |
-4.6% |
8.4% |
| Full-size SUV/CUV |
$13,704 |
$13,255 |
$12,494 |
3.4% |
9.7% |
| Luxury SUV/CUV |
$18,210 |
$18,591 |
$18,005 |
-2.1% |
1.1% |
| Compact Pickup |
$8,405 |
$8,608 |
$7,940 |
-2.4% |
5.9% |
| Full-size Pickup |
$15,187 |
$15,878 |
$14,775 |
-4.4% |
2.8% |
Source: ADESA Analytical Services.
The latest Market Insights report from Black Book shows that while value declines slowed a bit last week, auction no-sales remained high.
“Depreciation rate slows from steeper declines seen at the start of the quarter,” said Black Book’s Anil Goyal. “Smaller cars continue to show larger depreciation as opposed to larger crossover/SUVs.”
Volume weighted, overall car segment values decreased by 0.46 percent last week, which was lower than the rate of 0.70 percent seen in the previous four weeks.
Prestige luxury cars and subcompact cars declined the most, by 0.87 percent and 0.68 percent, respectively. Midsize cars and near-luxury cars showed the best retention, both declining by 0.40 percent.
Volume weighted, overall truck segment values decreased by 0.34 percent, which was lower than the depreciation rate of 0.58 percent seen in the previous four weeks.
Compact vans declined the most at 2.18 percent; other segments with a higher drop in value included full-size vans and small pickups. Subcompact crossover values, on the other hand, showed no change, and full-size crossover/SUV values dropped by a scant 0.07 percent.
The report took a look at retention rate trends for full-size crossover/SUVs, which showed consistency during the last six years. For the 2013 model year, the retention rate of these vehicles in November 2015 was 61 percent. For MY2014, the retention rate for the current month dropped only a little, to 59 percent.
As they do each week, Black book editors and personnel fanned out across the country to get a sense of what is happening at auctions.
Here are some of their observations:
- Good market trend at this location, with SUVs leading in demand. (California)
- Dealer lanes were slow today and the market is slightly down compared to this location last week (Texas)
- Plenty of no-sales here today but a huge selection of cars available. (Tennessee)
- Stable market here with clean, good-history units in demand. (Florida)
- Consignment was about normal today but there was a high percentage of no-sales. (Pennsylvania)
- Low vehicle count today with lots of higher-mileage units. Prices were down on most. (Washington)
Depreciation slowed a bit last week for both cars and trucks.
According to Black Book’s weekly Market Insights report, overall car values (volume weighted) decreased by 0.53 percent, which was lower than the average rate of 0.75 percent seen in the previous four weeks.
Overall trucks values, also volume weighted, decreased by 0.58 percent last week, which was slightly lower than the average depreciation rate of 0.61 percent seen in the previous four weeks.
“Depreciation slowed a little last week after four weeks of steeper declines,” said Black Book’s Anil Goyal. “However, auction reports continue to show spotty demand and higher no-sales.”
A Black Book lane watcher in New Jersey reported that “the market is still good but there were lots of no-sales today.”
And one in Tennessee bemoaned an “above-normal amount of no-sales on several lanes today. Dealers reporting retail sales are still slow on their lots.”
In Pennsylvania, trucks were in highest demand, “especially the ones that were already ‘retail ready.’”
A Black Book rep in Texas reported that the auction was well-attended and prices were stable.
And in Florida, “clean condition cars are getting harder to find,” a rep lamented.
Segment-specific depreciation
Among car segments, prestige luxury cars, subcompact cars and full-size car values declined the most, by 1.03 percent, 0.76 percent and 0.75 percent, respectively. Midsize cars showed the best retention, with values dropping by 0.17 percent.
As for trucks, subcompact crossover/SUVs and subcompact luxury crossovers declined the most, dropping by 1.96 percent and 1.66 percent, respectively. Midsize crossover/SUVs showed the best retention, with values dropping by 0.14 percent.
Overall, depreciation in car segments increased last month, led by compact cars at 3.6 percent.
Cox Automotive chief economist Tom Webb reiterated many of the foundational blocks of how the Manheim Used Vehicle Value Index is constructed when explaining why the October reading came in the way it did.
Manheim indicated wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) dipped 0.7 percent in October, while non-seasonally adjusted prices declined 2 percent during the month. The movement left the Manheim Index at 126.0 for October, an increase of 0.6 percent from a year ago.
Webb explained in his commentary that accompanied the latest index report that “although the Manheim Index is mix-adjusted, it does not account for overall inflation in new vehicle pricing or the shift to higher trim levels,” he continued.
“As such, the index will show an upward movement over time, and it is not inconsistent for the index to be ‘up’ even as commercial consignors report less-than-satisfying end-of-term lease residuals or lower repossession recovery rates,” Webb went on to say.
For index watchers who still might be unsure of how to digest the data, Webb shared a recommendation.
“For those perspectives, it is better to look at the index relative to its trend or in relation to a host of current and past new-vehicle price measures,” he said. “On that scale, wholesale pricing has shown some easing of late, but it is not particularly weak.
“This is in line with our beginning-of-the-year expectation as we fully expected the wholesale supply challenges would be more daunting in 2017 and 2018 than in 2016,” Webb added.
Half of the vehicle segments Manheim tracks for its monthly update moved less than 1 percent as prices for midsize cars (up 0.2 percent) and prices in the SUV/CUV segment (up 0.5 percent) ticked slightly higher while luxury car prices inched 0.9 percent lower.
Changing more dramatically in October were prices for pickups (up 4.8 percent) and vans (up 3.3 percent) as well as compact cars (down 3.4 percent).
“On a year-over-year basis, wholesale pricing for cars, for the most part, remains down, while pricing for pickups, vans, SUVs, and crossovers is up,” Webb said. “In recent months, however, the easing in pricing has been across the board, and the difference in price performance between cars and trucks has narrowed considerably.
“An analysis of changes in average mileage by price tier suggests widespread declines in wholesale pricing in October, with only vehicles in the $13,000 to $14,000 range escaping the pressure,” he continued. “Additionally, vehicles in lower price tiers showed only slight weakness.”
Webb also mentioned that prices for rental-risk slipped in October.
Manheim reported that rental risk units sold at auction had a slightly smaller than normal seasonal decline in volume, but a slightly larger than normal decline in pricing.
Average mileage, at approximately 38,500 miles, was higher than September, but 15 percent below last October.
“Auction pricing adjusted for broad changes in market class and mileage showed a 3-percent decline from September and a 2-percent decline from a year ago,” Webb said.
As he often does, Webb also recapped the retail side of the used-vehicle market in his monthly commentary, noting that dealership activity remains supportive to residuals.
“Third-quarter results for the six franchised dealership groups confirmed the pattern that we noted in the earlier CarMax report. Namely that, although overall results were greeted less than enthusiastically by financial analysts, the key metrics of importance to future used vehicle values — same-store sales growth and gross margins — were positive,” Webb said.
Webb noted that sales-weighted same-store retail used unit sales were up 1 percent in the third quarter. The uptick was the 28th increase out of the past 29 quarters, and gross margins were stable, according to Webb.
He went on to point out that while certified pre-owned sales fell for the second consecutive month in October, they remain up 3 percent year-to-date.
He closed by touching on the buy-here, pay-here segment.
“The lower end of the used-car market also bears watching in the months ahead. In recent years, there has been a greater use of down-payment deferral programs to get a jump-start on the tax selling season, but the actual flow of refunds is still important,” Webb said.
“In 2017, the PATH Act requires that the IRS hold tax refunds claiming the Earned Income Tax Credit (EITC) until Feb. 15. And, according to IRS data, in past years, more than $100 billion in tax refunds had already been disbursed by mid-February, with much of that being EITC monies, which have the highest correlation with lower-end retail used vehicle sales,” he went on to say.
