Cox Automotive chief economist Tom Webb reviewed the Manheim Used Vehicle Value Index going back more than two decades to give dealers and finance companies context relating to the latest wholesale-price decline.

Webb indicated wholesale vehicle prices (on a mix-, mileage- and seasonally adjusted basis) dropped for the fourth consecutive month in May, bringing the index reading to 123.8. The level represented a dip of 0.7 percent from a year ago.

“A look at the Manheim Index over its entire 20-plus year history shows that pricing over the past five years has been not only elevated, but stable,” Webb said when the newest index report arrived on Friday.

“Sure, there have been intra-year swings; but over the longer time span, the movements have been modest,” he continued. “Indeed, even with the recent declines in wholesale pricing, the index is only 3.1 percent lower than the peak reached in May 2011 — and that was a peak that was artificially boosted by the supply disruption resulting from Japan’s earthquake.”

Webb also pointed out the current Manheim Index reading is also close to its historic trend line, “whether that line is based on raw data or adjusted for changes in new vehicle prices.”

He went on to discuss what movement might be coming next in light of ongoing changes in the wholesale market and activities inside and outside the lanes.

“With wholesale supplies certain to grow (indeed, accelerate), a movement below trend should be anticipated,” Webb said. “The degree of deviation will be dependent on the ability of basic economic forces — labor market and credit conditions — to continue to support retail used unit volumes and profits.”

Market Segment and Price Tier Trends

Webb explained that May represented a continuation of trend with respect to pricing movements within market classes.

“Namely, compact cars were weak, and pickups were strong,” Webb said. “Luxury cars also continued to underperform the overall market, and within that segment, entry luxury cars were under the greatest price pressure.”

Manheim reported that compact-car prices softened by 6.6 percent in May while pickup prices surged by 6.1 percent. Prices for those luxury units dipped by 1.8 percent, joining the downward price trend that also included midsize cars (down 0.9 percent) and SUVs and CUVs (down 0.7 percent).

The sixth segment Manheim tracks, vans, saw their prices edge up 1.6 percent in May.

“Within the pricing tiers, there was weakness in the $9,000 to $11,000 range and strength in everything above $15,000,” Webb said. “This also represented a trend that has been going on for some time. The volume of vehicles offered in the $9,000 to $11,000 range was up considerably from a year ago.

“Pricing for dealer-consigned units in May was higher than a year ago, and average mileage declined ever so slightly during the month after rising for many years,” he went on to say.

Rental-Risk Unit Analysis

Webb noted that “older, rougher” vehicles dragged down prices in this segment of the wholesale market.

Manheim tabulated that a straight average of auction prices for rental risk units sold in May dropped by more than 10 percent from the year-ago level. After adjusting for broad shifts in market class and mileage, analysts found that the year-over-year decline was still more than 6 percent.

“Much of the remaining decline was a result of older and rougher-condition vehicles being sold,” Webb said.

Webb elaborated his assessment by giving examples In May of last year, he pointed out that 65 percent of the rental risk units sold were from the 2013 model year. But this past month, Webb said only 29 percent of sales were accounted for by 2014 model year vehicles while 57 percent of sales continued to be accounted for by 2013 model-year units.

Likewise, in May of last year, Webb explained 45 percent of the risk units sold at auction had a condition grade of 4.0 or better. In May of this year, he said only 30 percent did.

“Auction volumes for rental risk units were up significantly in May and for the first five months of the year,” Webb said. “Meanwhile, the number of new units sold into rental rose less than 1 percent in May, but was up 9.4 percent year-to-date.”

Consumer Spending on Vehicles

In his usual, to-the-point manner, Webb said that consumers are buying vehicles, but not much else.

He recapped that new cars and light-duty trucks sold at a seasonally adjusted annual rate (SAAR) of 17.7 million in May.

“This was far above expectations, and it was the best pace in nearly a decade,” said Webb, who added that three calendar “quirks” boosted the sales rate. Those elements included:

— Five weekends during the month

— Memorial Day coming early

— The “quaint” notion of adjusting for one less “selling” day

“Expect a June pullback (the selling-day adjustment will go the other way,” Webb said. “Nevertheless, new vehicle sales are strong (the year-to-date pace is 16.8 million), especially given that consumer spending on other items has been weak all year as households increase their savings rate.”

While the new-model market might have a skewed numbers in Webb’s view, the Cox expert insisted the used-vehicle retail market remains “solid.”

Total used-vehicle retail sales rose 5 percent in April, after being down in the first quarter, according to National Automobile Dealers Association.

“Conversations with dealers suggest that the turnaround continued in May,” Webb said. “For certain, CPO sales continued their record pace, with sales up 12.2 percent in May and 11.6 percent year-to-date.

“With dealers’ increasing operating efficiencies, the higher throughput has produced record profits,” he continued.

Webb closed his latest industry analysis with one more point.

“With respect to supporting used-vehicle values, it is encouraging that new-vehicle transaction prices continue to rise, incentive spending is flat, and inventory levels are normal,” Webb said.

“Wholesale used-vehicle prices, as measured by the Manheim Index, are now approximately at their historical trend level with respect to new vehicle prices as measured by the government,” he concluded.