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Where Used GM Full-Size SUV Prices Are Trending

In its latest Blue Book Market Report, one trend that Kelley Blue Book noted about February wholesale price activity was the movement in the values of full-size SUVs from General Motors.

Comparing the four-week period ending Feb. 21 with the one ending Jan. 24,  the average overall change for the segment was a 0.5-percent decrease. However, the change in prices for full-size SUVs in GM’s lineup were modestly higher, for the most part.

GM’s lineup in this segment as well as the declines seen last month in auction price are as follows:  the Chevrolet Tahoe (0.8 percent), GMC Yukon (0.9 percent), Cheverolet Suburban (0.6 percent) and GMC Yukon XL (0.5 percent).

Kelley Blue Book doesn’t think the drops will stop there either.

“With the release of newly redesigned vehicles for model-year 2015, Kelley Blue Book anticipates these values will continue to decline as sales ramp up,” Alec Gutierrez, senior analyst at KBB, explained.

However, these weren’t the only large vehicles to experience a price decline last month.

For instance, values for full-size pickup trucks (overall, GM or otherwise) were down from where they were in January.

This may come as a surprise, since large truck segments showed very strong retention levels throughout 2013.

Much of this strength was due to a spike in home construction, but now the tides have turned.

For more information on truck price trends, see the Auto Remarketing story here.

Crossover Trends

Moving elsewhere, KBB also looked at the price trends in a few crossover sub-segments.

Four-week prices were climbing among compact crossovers (up 0.6 percent in period ending Feb. 21 versus period ending Jan. 24) and midsize crossovers (up 0.5 percent), but values were static for the full-size variety.

Picking out a few compact crossovers that “performed well” and were ahead of the curve, KBB noted the Mazda CX-5 was up 2.4 percent in price, the Hyundai Tucson climbed 2 percent and the GMC Terrain was up 1.7 percent.

Used Prices Predicted to Peak This Month

The first day of spring is less than a week away, and auction prices are right in line with usual seasonal trends — that is to say, they are on the way up.

The good news? NADA Used Car Guide is predicting auction prices to peak this month, and then continue to slide downward through the remainder of the year.

According to its analysis, prices are expected to grow by 0.6 percent or $100 this week versus the two-week average. And as winter weather fades into more moderate spring days, some of the smaller vehicles are in high demand as consumers shift their interest away from four-wheel drive SUVs.

Prices reflect this trend, as well, as the biggest increases this week are expected in the compact car, compact utility and midsize car segments, which are all expected to see prices grow by a range of 1.3 percent to 2.0 percent for the week.

It doesn’t seem as if consumers have lost interest in large pickups, though, as they are still seeing very strong price retention rates.

Rounding out the top performers for price retention are large pickups, luxury cars and mid-size utilities, which are each expected to see gains within a tight range of 0.6 percent to 0.8 percent, David Paris, automotive analyst for NADA UCG, told Auto Remarketing.

As for expected declines this week, they are few and few between.

NADA UCG expects midsize vans to experience a 0.7-percent (or $125) drop in wholesale prices, followed by the luxury utility and large SUV segments with smaller losses of 0.4 percent and 0.2 percent, respectively.

But relief might be in site. Tax season, of course, is causing auction prices to spike, but it seems the increases might be short lived.

According to the latest Guidelines report from NADA UCG, used vehicle values are set to peak this month.

“Used prices grew by 0.7 percent over the first half of the month (February), but more favorable weather over the second half of the month allowed prices to grow by 2.2 percent by month’s end, which is in line with NADA’s forecast of 2.1 percent,” said Jonathan Banks, executive automotive analyst at NADA UCG.

NADA is predicting the seasonal uptick in price for used vehicles to continue through this month before dissipating in the second quarter of the year.

Prices are expected to rise by 1 percent this month, according to NADA UCG, and then fall by an average range of 2.5 percent to 3 percent per month from April through June.

NADA UCG expects prices to be 0.5 percent to 1 percent lower than 2013 levels by the end of this year.

Four- and two-week AuctionNet wholesale average prices are created by collecting all AuctionNet records for vehicles  up to five years of age for a specified period of time.  Prices are then adjusted for changes in mileage and mix.

Current week prices are based on NADA's proprietary used-vehicle value model which includes assumptions for new-vehicle prices, used vehicle supply, gasoline prices, and other economic factors.

Used Impact of GM’s $500 Offer on Recalled Units

As published reports indicate the Department of Justice is preparing a criminal investigation of General Motors and the recall of more than 1.3 million older, discontinued models because of ignition problems, the automaker is offering $500 to owners of these units to put toward the purchase or lease of a new vehicle.

But what about the units that might be in dealer inventory? There could be dozens of these units sitting on “value auto” lots of franchised groups or at buy-here, pay-here stores that cater to deep subprime buyers who might be a good fit for a Chevrolet Cobalt, Pontiac G6 or Saturn Ion — some of the models included in GM’s campaign.

Edmunds.com senior analyst Jessica Caldwell told Auto Remarketing on Wednesday that, “I don’t know how well informed people are about the situation, especially considering that these are older cars so they’re not necessarily commanding top dollar anyway. For example, the Saturn Ion goes back as far as 2003 so you’re talking about an 11-year-old vehicle. How much are you really going to be able to take off the resale value than what it costs at this moment?

“You mention buy-here, pay-here; people who are in that situation usually that’s their only option to buy a car so there’s not as much selection or flexibility in pricing because they’re kind of boxed in,” Caldwell continued. “I wouldn’t necessarily suspect a huge hit on some of these residuals just because these vehicles are so much older. The Cobalt, for example, was a compact car, not a $100,000 car to start with so it’s rather devalued at this point anyway.”

Auto Remarketing posed a similar question to Kelley Blue Book senior market analyst Alec Gutierrez, who offered some specific figures for used-car managers to consider.

“We don’t believe that this offer or the recall itself will have much, if any, impact on the values of impacted vehicles in the long term,” Gutierrez said. “With that being said, dealers with inventory currently on their lot might see a short-term drop in what consumers are willing to pay for these vehicles, at least until we are sure that the fix being implemented completely addresses the issue at hand. 

“In other words, we may see a short-term dip in values for these vehicles, likely less than 3 percent, but long term we don’t expect to see sustained downward pressure on these values,” Gutierrez said.

More Details of $500 Offer

Details of GM’s plan to give $500 to these vehicle owners came to light when the National Highway Traffic Safety Administration posted GM’s responses to regulators’ questions on the agency’s website on Wednesday.

The OEM told NHTSA this offer toward the purchase or lease of a new Chevrolet, Buick, GMC or Cadillac vehicle is valid only until April 30. Meanwhile, the automaker is still making plans to offer repair services at franchise dealerships to replace the ignition body.

OEM officials said recall announcements went out to vehicle owners this week, repeating recommendations to use only the key itself be used in the ignition. Investigations determined extra weight on key rings may allow the key to unintentionally move or switch to the “accessory” or “off” position, turning off the engine and most of the electrical components on the vehicle.

GM expanded this noteworthy recall on Feb. 25. In addition to 2005 through 2007 Chevrolet Cobalts and Pontiac G5 as well as the Pontiac Pursuit that’s sold in Canada only, GM separately recalled 2003 through 2007 Saturn Ions, 2006 through 2007 Chevrolet HHRs, and 2006 through 2007 Pontiac Solstice and 2007 Saturn Sky models.

The affected U.S. vehicle population, including those vehicles first recalled on Feb. 13, totals 1,367,146.

But that amount isn’t a new list for the business development centers at GM dealerships to leverage to move new metal.

In a message to Auto Remarketing, GM spokesperson Alan Adler said, “In keeping with our commitment to help customers involved in this recall, a special $500 cash allowance is available to purchase or lease a new GM vehicle. 

“We have been very clear in our message to U.S. dealers that this allowance is not a sales tool and it is only to be used to help customers in need of assistance. Neither GM nor its dealers will market or solicit owners using this allowance,” Adler said.

More Government Investigations & Potential Impact

On Wednesday, Bloomberg reported the Department of Justice is opening a criminal investigation into how GM handled this recall as data about problems with these vehicles reportedly dates back almost 10 years. That development comes on the heels of NHTSA seeking answers to more than 100 questions that had to be met before a deadline that would have triggered a $35 million fine as well as the U.S. House Energy and Commerce Committee organizing a future hearing on Capitol Hill.

“GM is under a microscope,” Caldwell said. “Following bankruptcy, a lot of people have strong opinions about that company that they might not have about other auto companies. Also with the new CEO, Mary Barra, I think she’s also very scrutinized like Marissa Mayer at Yahoo. Sort of every move she makes is widely reported. I think everyone is looking at this very closely.”

In the Bloomberg report published here, AutoPacific analyst Dave Sullivan took a similar view.

“Barra is getting her feet thrown right into the fire,” Sullivan told Bloomberg. “There’s no way she is going to come out of this looking like some kind of hero. The best thing is to be honest and upfront and hopefully put this to bed as quickly as possible.”

Despite the recent news, Caldwell indicated Edmunds.com search traffic of users looking at Chevrolet models hasn’t waned since the recall.

“It seems as if people are still interested in the brand. They’re not necessarily departing in droves away from it. But it does seem like this whole situation is gaining steam.” Caldwell said. “I think a lot of folks tune out recalls until they hit this fever pitch. When you start hearing of a Department of Justice investigation, I think that’s when people start to tune in a little bit more.

“The next few weeks, we’ll see if there will be any impact. Other companies have gone through this. While they may feel the pinch in the short term, it seems like there isn’t any real long-term effect,” she continued.

Gutierrez expects a similar fate for GM like what happened to Toyota as it navigated the unintended acceleration turmoil seven years ago.

“GM’s decision to offer a $500 cash allowance for owners of recalled GM products is one that is well-intended, but not likely to make much of an impact on the perception of their brand or the likelihood of a current owner to remain in the fold,” he said. “For those already considering a new GM this is certainly an added bonus, but is likely not enough to make a significant difference to those that worry about the longevity and reliability of GM’s current and future products.

“This seems similar in scale to the Toyota and Ford/Firestone recalls of the past. In each of those cases, values took a short-term hit before rebounding and leveling off long term,” Gutierrez added.

2 Elements Trigger ‘Atypical’ Price Movement

ADESA’s Tom Kontos pointed to two factors as to why February’s wholesale price movement ended up being “atypical.”

According to ADESA Analytical Services’ monthly analysis of wholesale used-vehicle prices by vehicle model class, used vaules in February averaged $9,839 — down 1.4 percent compared to January, but up 0.9 percent relative to February of last year.

Kontos mentioned in his monthly commentary that compact cars and vans, which are popular rental and fleet vehicles, were the only segments that had both monthly and annual price gains.

“Wholesale prices were down in February versus January, a-typical of their seasonal pattern, but were up modestly on a year-over-year basis, despite continued wholesale supply growth coupled with weaker retail demand limited by severe weather conditions,” Kontos said.

“This unusual pattern would indicate that dealers were fairly aggressive in proactively bidding in-lane and online for the vehicles they need for the budding spring market, especially highly certifiable off-rental program vehicles remarketed by auto manufacturers,” he went on to say.

ADESA indicated prices for used vehicles remarketed by manufacturers moved up 1.3 percent month-over-month and 6.3 percent year-over-year. Kontos reiterated that manufacturers capitalized on strong demand for certifiable units.

Analysts also mentioned prices for fleet/lease consignors softened 0.5 percent sequentially, but climbed 1.1 percent annually.

Furthermore, ADESA noted dealer consignors saw a 1.1-percent average price increase versus January and a 0.9-percent uptick versus February of last year.

Kontos wrapped up his commentary by recapping CNW Research information that indicated retail used-vehicle sales dropped 15.6 percent month-over-month “as severe weather again negatively impacted auto shopping.”

Meanwhile, Kontos mentioned Autodata Corp. information that showed sales of certified pre-owned vehicles in February rose 7.7 percent above the prior month and 14.1 percent above the prior year

“The strong certified sales may have been a factor in strong pricing for off-rental program units sold by the manufacturers,” he said.

KAR Auction Services Amends and Restates Credit Agreement

In other company news, ADESA parent KAR Auction Services announced Tuesday that it amended and restated its credit agreement dated as of May 19, 2011.

Officials explained the term loans under the original credit agreement have been repaid in full and terminated, and refinanced with a $650 million three-year senior secured term loan B-1 facility and a $1.120 billion seven-year senior secured term loan B-2 facility.

In addition, KAR noted the amended and restated credit agreement also established a five-year $250 million revolving credit facility in place of the previous revolving commitments. The interest rate of term loan B-1 was reduced to LIBOR plus 2.50 percent.

The company computed the interest rate of term loan B-2 remains at LIBOR plus 2.75 percent but the LIBOR floor was reduced to 0.75 percent.

“The reduction in pricing is expected to save the company an annualized amount of approximately $9 million in cash interest,” KAR said. “The revolving commitments may be used for ongoing working capital needs and general corporate purposes for the company and its subsidiaries. The company has not drawn any amounts under the revolver.”

Construction Slump Pushes Used Pickup Prices Down

Though wholesale prices rose overall last month, according to Kelley Blue Book’s latest Blue Book Market Report, values for full-size pickup trucks are lagging behind the industry average.

This may come as a surprise, since  large truck segments showed very strong retention levels throughout 2013.

Much of this strength was due to a spike in home construction, but now the tides have turned.

According to KBB data, auction values for full-size pickups fell by 0.77 percent last month from January rates and were down 0.67 percent year-over-year.

And according to ADESA Analytical Services, the average wholesale price for full-size pickup trucks in February was $12,460, down from $12,632 in January.

This is contrary to overall trends, as auction values rose this past month, hitting an average of $17,970, which is just $27 less than last year’s February average, according to KBB.

Though some of that decline may be due in part to seasonal patterns, “slower construction may lengthen the perid of lower values and dampen the expected increase in values during the coming months,” KBB analysts explained.

Backing up these claims, according to the report, permits authorized for new privately owned housing units in January were 5.4 percent lower than December 2013 and 2.4 percent below January 2013.

On the same note, construction starts for privately owns units in January were 16 percent lower than December 2013 and 2 percent lower than the same period of 2013.

KBB predicts that if construction continues to slow, values for full-size pickups should continue to drop.

In fact, KBB predicts these trends will impact full-size pickup rates so much that this segment is not expected to see a strong price resurgence this spring, even amid tax season highs.

Auction Trends Reflect Comfort With Gas Prices

Auction values may be on the rise as spring season gets underway, but fuel prices remain low. The result?

 Consumers may be less inclined to shell out for fuel-efficient models such as the Toyota Prius.

According to Kelley Blue Book’s latest Blue Book Market Report, auction values rose this past month, hitting an average of $17,970, which is just $27 less than last year’s February average.

Though values are predicted to “continue their seasonal upswing” through April, KBB expects 2014 values to remain slightly below 2013 rates throughout the remainder of the year.

After early 2013’s fuel-rate spike, which brought averages above $4, fuel rates have remained fairly consistent.

Currently, even though fuel rates started the year off a bit above 2013 values, prices have since dropped.

According to the report, the average price for a gallon of regular fuel currently is $3.33, or 36 cents lower than it was this time last year.

KBB is predicting fuel prices to rise slightly due to seasonality in the short-term; however, analysts note rates should remain below 2013 levels.  

Alec Gutierrez, senior analyst for KBB, explained how this trend will affect not only fuel-efficient segments, but also the truck groups, as well.

“Lower prices for fuel translate into more money in the consumer’s pocket and more flexibility when choosing between vehicles with higher and lower MPG,” said Gutierrez. “This benefits the truck segments and can decrease demand in the hybrid or fuel-efficient segments.”

Taking a historical perspective KBB pointed out a few changes in regards to the Toyota Prius, which is a good indicator of overall fuel-efficient model trends.

Back in 2011, gas prices spiked, and the used-car market saw the average retail price of the Prius rise to 132 percent of suggested MSRP.

Though fuel prices are higher today than they were in 2010 and 2011, consumers may have just gotten used to these increased rates, says KBB analysts, and may have become less willing to pay out for more expensive fuel-efficient vehicles.

“Since 2011, the average retail retention for the Toyota Prius has dropped significantly to 77 percent of MSRP,” said Gutierrez. “The interesting thing to note is while fuel remains cheap compared to 2012 and 2013, it is actually higher than it was in 2011, when the values for hybrid cars shot up to many than 100 percent retention.”

Used Prices Drop More Than 1 Percent

Though prices are revving up for tax season as spring approaches, used-vehicle values were still on the way down during month two of the new year. That said, prices were already showing stronger retention in February than seen during the last few months of 2013.

According to Black Book data, prices for used vehicle from model years 2008 through 2012 fell by 1.1 percent last month, compared to a 1.9-percent decline in January.

“We’re beginning to feel the first true effects of the springtime tax buying season through the stronger monthly retention levels in February compared with January,” said Ricky Beggs, editorial director of Black Book. “We will keep a watchful eye on the continued winter weather patterns, growing supply and off-lease activity, all of which could have near-term effects on the spring buying season.”

And Black Book is predicting this rate of deprecation won’t slow down much as the company expects overall 2014 depreciation of 13.5 percent.

The strongest price retention last month was seen in the full-size passenger van segment, which saw a slight decline of 0.2 percent, bringing the average price to $12,841. Interestingly, this marks a 13.2-percent year-over-year decline, despite the small monthly change.

Full-size cars led the pack for car segments, with depreciation of 0.4 percent in February, with an average wholesale price of $12,841, as well, marking a 15.9-percent year-over-year decline.

Cargo minivans had the highest depreciation rate in February, falling 3.4 percent.

Vehicles in this segment finished with an average wholesale value of $9,068, a 17.2-percent drop from year-ago levels.

Interestingly, even though truck segments experienced stronger-than-average retention rates throughout 2013, the top six segments with the largest monthly depreciation last month were all truck categories.

Cargo minivans were followed by full-size crossovers (down 2.0 percent), midsize crossovers (down 2.0 percent); compact crossovers (down 1.4 percent), midsize pickups (down 1.5 percent) and midsize SUVs (down 1.3 percent).

Spring Arrives in the Lanes

With 70- to 80-percent sales conversion rates and more than half the price changes in the lanes being increases last week, it seems warmer weather isn’t the only harbinger of spring.

“Spring season is alive and well,” in the lanes, as well, says Black Book's Ricky Beggs.

With 53 percent of prices changes made last week being increases, Beggs, editorial director and senior vice president of Black Book, said this represents “three straight weeks of the best market activity and results since almost year-ago levels.”

Amid all the positive activity, Beggs pointed out a few trends that stood out last week in his latest “Beggs on the Used Car Market” video report.

First off, the three car segments that saw overall increases two weeks ago — the upper midsize cars, the entry midsize cars and the entry level cars — all saw price hikes again this past week.

But one segment joined the rising ranks, as well: compact cars saw an average jump up of $10 last week.

The full-size cars are also “showing stability,” Beggs said, with only a $7 decline last week.

On the other hand, once again, the prestige luxury cars saw the biggest decline last week, falling by an average of $201. The premium sporty cars also put up a weak showing, falling by $107 last week.

These numbers may not be surprising as Beggs pointed out, “With the weather continuing to wreak havoc overall, we are sure not thinking about it being a sporty car market right now.”

The overall decline of $39 for the cars is greater than the prior week, but still the second lowest level weekly change since the week ending Dec. 6, according to Black Book data.

The truck market also continues to perform well, with an average price decline of $10 last week. This is the lowest level of decline seen since May 10 of last year, when the trucks saw a price spike of $2.

The five segments with increasing prices last week were led by the full-size vans — both cargo and passenger versions — as well as the compact SUVs with a rise of $47, and the midsize SUVs, rising by just $1

“Another sign of a positive moving market is that 10 of the 14 truck segments either were positive levels of change or the declining average segment change was a lesser decline than the prior week,” Beggs concluded.