Current Monthly Index

Wholesale Prices Start 2010 with a Slight Rise

Wholesale used vehicle prices (on a mix, mileage and seasonally-adjusted basis) moved up marginally in January. The Manheim Used Vehicle Value Index was 117.6 for January, which represented a 15.6% increase from a year ago.

Although new vehicle sales in January stepped back from their pace in late 2009, the retail used vehicle market strengthened. From a profit perspective, used vehicles benefited from further improvements in the retail financing environment and dealer efforts to pull tax season sales forward.

The recall, and halting of sales, by Toyota in the last week of January introduced uncertainty into the market. But, from a residual standpoint, this is a story yet to be written.

Overall Market Conditions

New vehicle sales pace retreats in January. The seasonally adjusted annual rate of sales in January slipped to 10.8 million from a pace of 11.3 million in December and 11.2 million for the entire second half of 2009. January’s new unit sales count was below 700,000, and if you take out the 76,525 unit increase in fleet sales, retail deliveries were below the historic low reached a year ago. Despite the softness in sales, new vehicle incentive spending remains constrained and inventory levels are in check.

We believe that the new vehicle sales pace will pick up as the year progresses. That, in turn, will stimulate dealer consignment volumes at auctions and, at the same time, help spur further increases in retail used vehicle sales.

Used vehicle retail sales improve. Retail used vehicle sales in January showed a significant year-over-year gain, according to preliminary statistics from CNW Marketing Research. Comments from individual dealers confirm that improvement - most reported a strong month, few cited any softening. Although several dealers said the inability of some tax preparers to offer refund anticipation loans hurt sales in January, more felt that the higher level of refunds overall more than offset that. Indeed, if the expected surge in tax refunds (especially the Earned Income Tax Credit) comes to pass, February used vehicle sales will definitely benefit.

Credit availability is not the problem; its lack of demand. For the first time in nearly three years, the share of banks reporting an increased willingness to lend exceeded the share that was tightening. The same survey (conducted by the Federal Reserve in January) showed that demand for consumer loans of all types has weakened.

This is consistent with the expected, and needed, de-leveraging of household balance sheets. In December, personal income rose 0.4%, but spending increased only 0.2%, which boosted the savings rate to 4.8%. Likewise, the final sales component of GDP rose only 2.3% in the fourth quarter (as opposed to the 5.6% rise in total GDP). To be sure, this was better than the 1.5% increase in final sales in the third quarter (and negative numbers before that), but this level of consumer demand can hardly be called robust.

Trends by consignor group and market segment

The volume of rental risk units sold at auction increased substantially from a year ago, while the average price and mileage remained well above year-ago levels.

Program rental volumes at auction continued to decline. Their pricing was very strong, and average mileage was unchanged.

Prices for midsize end-of-service fleet cars eased back modestly from a strong finish at the end of 2009. Average mileage on these units moved up noticeably in January. In 2009, average mileage on these units was often distorted by the early pullout of fleet units no longer needed because of workforce reductions or corporate financial issues. As confirmed by the increase in commercial fleet purchases in January (up 29% from a depressed year ago level) companies are returning to a more normal replacement cycle.

Over the past three months, pickups, SUVs, and vans have outperformed the car segments, but that is partly reflective of differences in their normal seasonal patterns. Longer-term, and accounting for seasonal factors, the differences in price performance between individual market classes has normalized. In January, however, most luxury segments (cars, SUVs, and sports cars) underperformed the overall market.