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Industry Outlook

Manheim Used Vehicle Value Index Report – June 2016

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Article Highlights

  1. Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased for the third consecutive month in June, resulting in a Manheim Index reading of 126.2. After rising every month in the second quarter, wholesale prices are now at their highest level in more than four years and off only 1.3% from the record high reached in May 2011.
  2. Total used retail unit volumes increased 4% in the first five months of 2016, with franchised dealers up 3% and independents up 6%, according to NADA.
  3. All of the strength in wholesale pricing remains concentrated in pickups, vans and certain sports cars – the same segments that are enjoying the strongest increases in average new vehicle transaction price. Wholesale pricing for all other market classes is flat to down.
Wholesale Prices Rise Again in June…

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased for the third consecutive month in June, resulting in a Manheim Index reading of 126.2. After rising every month in the second quarter, wholesale prices are now at their highest level in more than four years and off only 1.3% from the record high reached in May 2011.

There is still no doubt that the long-term trend for wholesale pricing is down, not up.  So every modest step up now should be taken advantage of, and appreciated, as each is likely raising the floor to which prices will fall in this cycle.

Could a Lower-Than-Expected SAAR Be A Good Thing?  

For months, we have been pondering the question of whether manufacturers would accept or defy the plateauing in new vehicle sales, hoping they would submit to the former. June appeared to be an acceptance – unless manufacturers were caught totally unaware by the sales pace. After all, it was a 16.6-million SAAR with no apparent accelerating incentive war at month’s end.

Sure, “reported” incentives rose modestly; but when dealers decide not to aggressively pursue stair-step goals because the objectives are out of reach, the programs have no residual impact. And, with the fastest- and strongest-growing segment of the market – pickup trucks – having an average transaction price in excess of $47,000, it’s hard to accuse the industry of giving away vehicles in a fire sale.

Given that total new vehicle sales in the first half of 2016 were up 1% from a year ago, it’s common practice to say that this year is “on track” for another record. That’s technically correct, but misleading. The SAAR averaged only 17.1 million in the first half of this year versus last year’s full-year total of 17.5 million. Achieving a record this year will require the matching of some very hard comps. The lowest monthly SAAR in the second half of last year was 17.47 million (that’s higher than anything achieved so far this year) – and three of the last six months in 2015 had a SAAR in excess of 18 million. We’re probably setting up for disappointment, or higher incentives – and, possibly, both.

Used Vehicle Sales Continue to Rise… 

Total used retail unit volumes increased 4% in the first five months of 2016, with franchised dealers up 3% and independents up 6%, according to NADA. Those gains exceed what the fundamentals of employment gains, credit availability and ownership needs would suggest. The gains more likely reflect the forced churn caused by higher wholesale supplies. With this environment remaining in the second half of the year, there will be continued pressure on pricing and gross margins. CPO sales rose 5% in June, resulting in a first-half gain of 3.8%.

Lower Mileage and Better Mix Drive Rental Risk Prices Up…   

A straight average of auction prices for rental risk units sold in June jumped nearly 18% from a year ago. Last June, the average mileage on rental risk units was a record-high 51,200 miles. This year, it fell to 38,500 miles – the lowest since December 2013. June’s mix of crossovers and vans was significantly higher, while the share of rental risk unit sales accounted for by midsize cars was down. Rental units being sold at auction this June were also in better condition.

Rental risk auction prices, adjusted for broad changes in mix and mileage (but not condition), were flat in June relative to a year ago. They were up 2.2% from May, on significantly lower volume.

Pickup Truck Pricing Remains Strong. 

All of the strength in wholesale pricing remains concentrated in pickups, vans and certain sports cars – the same segments that are enjoying the strongest increases in average new vehicle transaction price. Wholesale pricing for all other market classes is flat to down.

Within price tiers, our analysis was mostly non-definitive and not correlated with volume shifts. There was some additional weakness in the lower-middle price tier ($7,000 to $8,000 at wholesale), which could suggest some negative shifts in the subprime financing environment.

Unadjusted Prices Remain High.

Naturally, unadjusted prices continued to rise faster than the Manheim Index, as the sales composition shifts toward more lower-mileage units and a higher commercial consignment share.

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