Comparison to CPI

 

For both modeling and statistical analysis work, The Manheim Used Vehicle Value Index is superior to the Used Vehicle CPI.

 

One Index, Many Uses.

To statistically study the relationship between used vehicle prices and various economic and industry factors, analysts need one time series that reflects the overall movement of used vehicle values. In the past, that has generally meant a reliance on the used vehicle component of the Consumer Price Index (CPI).

In concept and potential uses, the Manheim Used Vehicle Value Index and the Used Vehicle CPI are similar. Their methodology and subsequent results are, however, substantially different.

Sampling.

The CPI selects a limited number of used vehicles to be priced each month. There have been some periods when that sample has not been reflective of actual used vehicle market activity. The Manheim Used Vehicle Value Index, however, incorporates all sales transactions at our U.S. auctions – that’s over 5 million per year.

Pricing.

The CPI takes prices from a used car guidebook. Guidebook prices include editorial judgment and broad assumptions regarding the proper addition or deduction for mileage, condition, and options. Manheim uses pure prices based on actual sales.

Methodology.

The CPI incorporates an "expected depreciation" factor, which, since it is based on past history, introduces a bias. For example, if used vehicle prices show an extended period of strength, "expected depreciation" will decline and thus prices will have to continue to rise just to keep the index stable.

Since the Used Vehicle CPI is part of a cost-of-living index, it is necessary to incorporate quality adjustments. This greatly complicates both measurement and methodology and, once again, introduces subjective judgment.

To smooth the index and to account for the fact that they are trying to represent retail prices with wholesale data, the CPI uses a three-month moving average of depreciated prices. This, of course, complicates proper interpretation of statistical studies and greatly reduces the Index’s ability to give a timely "heads up" to changes in the used vehicle marketplace.

Results.

A comparison of the Manheim Used Vehicle Value Index and the Used Vehicle CPI is presented on this page. Knowledgeable industry observers would certainly agree that the Manheim Index has provided a more accurate portrayal of the used vehicle marketplace.