Along with explaining why last month’s new-vehicle sales performance might have been good for the used market, Cox Automotive chief economist Tom Webb pointed out the Manheim Used Vehicle Value Index for August rose more than 2 percent year-over-year.
Manheim reported that wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) declined slightly in August on a sequential basis. But the latest index reading came in at 126.9, an increase of 2.1 percent from a year ago.
“Wholesale pricing in 2016 has been supported by a retail market that enjoyed higher volumes, stabilizing margins and respectable turn rates. And, importantly, dealers have continued to increase efficiencies in their used vehicle operations,” Webb said in his commentary that accompanied the latest Manheim Index report.
More evidence of consumers shying away from cars and leaning toward trucks and SUVs arrived in Manheim’s wholesale data. Analysts found that prices for compact cars and midsize cars softened by 1.8 percent and 1.2 percent, respectively.
Meanwhile, prices for the other four vehicle segments Manheim tracks for its monthly update moved higher as follows:
—Luxury cars: up 3.2 percent
—Pickups: up 6.2 percent
—SUVs/CUVs: up 1.6 percent
—Vans: up 2.7 percent
Rental and fleet update
Webb mentioned that lower mileage and a better mix kept rental risk prices strong in August. Unadjusted auction prices for rental risk units remained near record levels in August, according to Manheim.
“As was the case in recent months, the age, mileage, mix, and condition of vehicles being offered was much improved from a year ago,” Webb said. “As such, after adjusting for mileage and broad changes in mix, auction prices were down 1.2 percent from a year ago.
Webb added that the volume of rental risk units sold at auction was relatively high for an August.
“This could be a sign that stop-sale/stop-use units are finally being repaired and creating less demand for loaner vehicles,” he said. “New unit sales into rental rose 11 percent in August, and were up 6 percent year-to-date.”
Meanwhile, Webb insisted that commercial fleets continued to buy pickups and vans. He noted new-vehicle sales into commercial fleets declined 10 percent in August, but were up 9 percent year-to-date, based solely on the strength of pickups and the new Euro-styled vans.
“Auction sales volumes for end-of-service fleet vehicles have also been strong in 2016,” Webb said. “Average auction pricing for midsize fleet cars is running below the prior two years, despite lower average mileage at time of sale.
“Pickups and vans are, of course, doing well in the resell market for fleet managers,” added Webb, who again will be one of the experts during Used Car Week at the Red Rock Resort and Casino in Las Vegas on Nov. 14-18.
More about new-model retail sales
When discussing new metal rolling over the curb at franchised dealerships, Webb offered that “some records are not worth chasing.” He pointed out that the seasonally adjusted annual rate (SAAR) for new vehicle sales slipped back below 17 million in August.
“Our reaction is the same as in June (the last time the SAAR slipped below 17 million): good,” Webb said. “Because, as then, there are signs manufacturers are not overly pushing the market.
“August incentive spending was flat, sequentially,” he continued. “Sure incentives were reported to be up sharply from a year ago, but that reported amount has no impact if it is not actually dispersed.
“A lot of stair-step money did not actually hit the market in August as dealers did not, and knew they would not, reach their quotas. Last August, almost everyone met their quotas,” Webb went on to say.
But what about leasing? Experian Automotive just reported that its second-quarter data showed a record 31.44 percent of new-model financing was completed through a lease.
“Several lessors seem to have pulled in some of the more aggressive promotions,” Webb said. “As a result, preliminary numbers suggest that the lease penetration rate in August fell below its year-ago level for the first time in more than four years.
“Our major concern with the new-vehicle market’s impact on used-vehicle residuals is that current inventory levels and production schedules are not in tune with what is likely to be fourth-quarter demand. Production plans must be adjusted downward,” Webb added.
Closing thoughts on used market
Simply stated, Webb acknowledged that used-vehicle sales “keep humming.”
In the first seven months of this year, Webb calculated that used-unit sales by both franchised and independent dealers increased at the fastest pace of this recovery, and more than twice as fast as last year.
“While new retail unit sales have declined this year, used unit sales are up. That’s normal for this point in the automotive cycle, and we expect it will continue into 2017,” Webb said.
He added that sales of certified pre-owned vehicles rose 6 percent in August and 4 percent year-to-date. Full-year sales are set to reach a record 2.7 million, according to Manheim’s projections.