The National Auto Auction Association noticed overall wholesale volume declined 0.4 percent during the first quarter, but the organization insisted the lanes showed plenty of life as time passed.
During Q1, NAAA economist Ira Silver pointed out an increase in dealer consignment was offset by a decline in commercial consignment, leaving the overall mark slightly lower.
“While this is a move down from the increase in the fourth quarter of last year, recent monthly figures show significantly more strength with the February through April period up over 3 percent from 2012,” Silver said in NAAA’s latest Auction Industry Report.
“As commercial consignment volume strengthens this year, total volume gains will accelerate,” he continued.
In 2012, NAAA determined dealer consignment moved up 6.4 percent compared to an 11.2 percent increase a year earlier. Meanwhile, the association recapped that commercial consignment moved 6 percent lower a year ago compared to a 21.4-percent drop-off in 2011.
“This year we expect to see auction volume gains in dealer consignment and a turnaround in commercial consignment producing an up year with a significant increase in total auction volume,” Silver said.
“In the first quarter light truck auction volume increased slightly, while passenger car volume declined marginally,” he continued.
“Average auction prices continued declining at a slow rate as strong retail sales driven trade-in supply remains high,” Silver went on to say.
Strengthening Retail Sales to Help Auction Volume
Silver recapped that first-quarter used-vehicle sales increased by a “strong” rate of 7.9 percent year-over-year.
Last year, NAAA pointed out the industry generated 40.5 million used sales, the most in five years.
“Continued strong new sales will provide supply to the used market leading to a 2013 increase in used retail sales in the 5-percent area,” Silver said.
Silver mentioned new light vehicle sales picked up to a 15.3 million annual rate in the first quarter from 15.0 million in the fourth quarter of 2012. The first quarter sales rate of 15.3 million was the highest in five years, according to NAAA.
“The improving economy, a declining unemployment rate, cheap and easy credit conditions, attractive fuel-efficient models, a great deal of pent-up demand and significant increases in housing and stock market wealth are resulting in higher new light vehicle sales,” Silver said.
“Continuation of these conditions is expected to produce total new light vehicle sales approaching 16 million units this year and over 16 million next year,” he continued.
“As the raw material of the auction business, strong new vehicle sales portend positive auction volume trends going forward,” Silver went on to say.
More General Economic Commentary
Silver elaborated about some of the other non-industry economic conditions that could play a role in the behavior of both the wholesale and used-vehicle retail sales segments.
Silver said real gross domestic product (GDP) rebounded in the first quarter to 2.4 percent at an annual rate from 0.4 percent in the fourth quarter. He mentioned first quarter consumer spending was up 3.4 percent led by motor vehicles with a 9.1-percent increase, after gaining 22.5 percent in the fourth quarter of 2012 and 10.1 percent in the third.
Home construction in the first quarter increased at a 12.1 percent annual rate after a 17.6-percent gain in the fourth quarter of 2012, according to NAAA’s report.
What Silver called a second “sharp” decline of 12.1 percent in real defense spending related to sequestration subtracted 0.6 percent from overall real GDP growth.
“Declining federal spending, if not reversed, will be a drag over the next couple of quarters keeping GDP growth in the 2-percent range,” Silver said.
“If first quarter defense spending had been flat with the fourth quarter, real GDP would have increased 3 percent,” he continued.
“While federal government spending will continue to be a drag on overall economic growth unless an alternative plan is passed, the effect will probably lessen as time passes,” he went on to say.
Elsewhere, Silver noticed fourth-quarter spending on consumer and business goods had reduced business inventories, subtracting 1.5 percent from GDP growth.
In the first quarter, however, Silver said inventories were rebuilt, adding 0.6 percent to real growth.
Moving along, Silver said, “Housing continues to be the factor that has shifted from a drag on economic growth to a stimulus.”
After declining for six years in a row, NAAA reported real residential construction spending increased 11.9 percent in 2012.
“Pent-up demand in the housing sector is especially large and house prices are moving up at an accelerating rate,” Silver said. “With record low mortgage rates, buyers that have been holding back in fear of price declines are flooding back into the market further driving up prices and creating an upward cycle.
“In addition to the direct effect of house construction on the demand for labor and materials, higher home prices add to household wealth and drive stronger consumer spending,” he added.
Silver wrapped up his commentary by discussing one other spending segment that could boost the overall economy.
“Another source of future spending is the state and local sector, which has been a drag on overall growth for the past three years,” Silver said. “Most states have some sort of balanced budget requirement. During the recession state revenues declined sharply and so did spending to balance the budgets.
“Now that the economy has improved, revenues have been growing and many states find themselves with large surpluses that will be spent to meet balanced budget rules,” he continued.
“We continue to expect a reasonable compromise to the spending part of the fiscal cliff,” Silver went on to say. “In addition to the reduction in federal tax and spending uncertainty, the extraordinary boom in U.S. energy production will reduce the cost of producing energy intensive products in the U.S. and add to manufacturing growth.
“This improving U.S. outlook when combined with a recovering Europe, stronger China, and a Japan that is aggressively trying to grow, provide the ingredients for improving worldwide economic growth in the next few years,” he concluded.