While circling back as to how current wholesale price levels might impact movements during the second half of the year, Cox Automotive chief economist Tom Webb acknowledged scores of vehicles currently are sitting at auction because they have an open recall and cannot be sold. The situation might become even more obvious depending on how many current Volkswagen diesel owners opt to dispose of their units as a part of the automaker’s ongoing rectification of what’s been dubbed in some circles as “Dieselgate.”
Of course, there are vehicles from a wide array of badges that can’t go down the lanes, which Webb indicated is “obviously extremely unfortunate because we’ve had some very good pricing in the market now.
“When they’re available for sale, you’re not only fighting the seasonal trend but also probably a cyclical trend downward, too. It’s been extremely unfortunate, and I know everyone would rather have those units available, but that’s simply not possible,” Webb continued when he hosted his quarterly conference call soon after the latest Manheim Used Vehicle Value Index was released.
Unlike the VW situation where the OEM and federal regulators continue to collaborate on an approved repair, other open recalls are not triggering as much of a public outcry but still are causing issues for auctions, consignors and dealers.
“For many of them, the parts are not readily available so they are not going to come back into the market very quickly,” Webb said. “There is some concern that if you were able to wave a magic wand and fix all of these open recall units and push them on the market that would have a depressing impact on price. But the fact of the matter is there is no magic wand and they will come back into the market at a relative steady rate."
As previously reported by Auto Remarketing, Manheim said that wholesale prices are now at their highest level in more than four years after rising every month in the second quarter. Webb attempted to project what the current level might do to price movements later in the year, especially in autumn as off-rental activity ticks higher in conjunction with off-lease volume that’s already on the rise.
“I would say frankly I’m a little surprised by the strength in wholesale prices so far this year,” Webb said after the latest Manheim data indicated the Manheim Index now is only 1.3 percent away from the record high reached in May 2011.
“As anticipated, the volumes have been quite strong and they pretty much have been in line with what we’ve expected,” he continued. “There are of course some units sitting at auction that you can’t sell because of recalls. One could argue that might have had a positive impact in terms of prices, but that’s arguable.
“Almost everyone is expecting that prices will decline. To get to what we’ve expected for the year, we’re going to have to have a steeper fall off,” Webb went on to say.
As parts for recalls become available, it means the service bays at franchised dealerships are humming. Webb pointed out what that situation means for auctions beyond just bringing down the sales hammer each week.
“The amount of reconditioning work that is done varies quite a bit by consignor and the types of vehicle segments that they’re selling,” Webb said. “Given the shifts we’ve had, that favors the recon environment from our standpoint. Off-lease units that get into the open auction process are probably going to have more recon attached if they get to the physical auction.
“But in terms of the practices of the individual consignors, I don’t think they have substantially changed,” he continued.
“Where we have seen some changes is there is probably better utilization where buyers who are buying units and doing post-recon work at our facilities,” Webb went on to say. "Some of that has been because we’ve been better at marketing it as well as related to the recalls because the dealers’ service facilities are backed up with their own recall activity. Therefore, to the extent they can get the work done at auction, they avail themselves for that opportunity.”
Also of note, Webb quickly touched on conversion rates and what they might do to the wholesale market going forward.
“The conversion rates at auction were not very good in March and early April, but they’re now back to normal or even a little bit higher than normal, which is a good thing,” he said.