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Manheim Index Declines in June

Wholesale used vehicle prices (on a mix, mileage, and seasonally adjusted basis) slipped 0.7% in June. Before the seasonal adjustment, prices declined by 1.5%. The Manheim Used Vehicle Value Index for June was 120.2, which represented a 5.3% increase from a year ago.

The sustained and very strong upward movement in wholesale prices, which began at the start of 2009, appears to have come to a natural end. This was a result of the inevitable, but rather flexible, ceiling imposed by new vehicle prices and the leveling off of retail demand amidst an anemic labor market and increased concern as to the recovery’s strength and longevity. In June, the biggest weakening in demand was for vehicles in the $7,000 to $9,000 price range.

Weak retail demand keeps new vehicle sales in check.  New vehicle sales in June equated to a seasonally adjusted annual rate (SAAR) of 11.1 million units, down from 11.6 million in May. The recovery in auto sales has shown no upward momentum. Indeed, even including the cash-for-clunkers boost, the SAAR has averaged less than 11.2 million over the past twelve months. And, much of that has relied on fleet purchases.

The share of total new vehicle sales accounted for by fleets (rental, commercial, and government) was 21.0% in the first half of 2010 versus 17.4% in the year-ago period. Blame the rising share on low retail sales, not high fleet sales. Manufacturers are not forcing units onto fleet buyers at heavily-discounted prices. In fact, the current level of fleet purchases is consistent with legitimate business needs relative to fleet size and aging.

Used vehicle retail sales advance modestly.   Total used vehicles retailed in the first half of 2010 rose by 3.6% according to CNW Marketing Research. Sales by dealers rose 4.4%, while private party transactions increased 1.8%.

Frankly, we had expected a better showing for retail used vehicle sales in the first half of 2010. The used vehicle churn (used vehicle sales divided by vehicles in operation) fell to a cyclical low of 14% in 2009. Although the churn rate has shown a long-term downward trend, we had expected it to rise to a more normal 16% relatively quickly, but, it appears, that the ratio will remain under 15% in 2010.

Pricing for large and small vehicles outperforms the overall market.   Year-over-year price increases by major market classes show compact cars, large SUVs, and vans performing very well, while midsize cars have only a modest gain. In June, compact pickups, sports cars, and premium luxury units were the weakest segments.

Rental risk prices stable; rental repurchase units hit new high in pricing. Prices for end-of-service rental risk units were little changed on both a sequential and year-over-year basis in June. Average mileage for these units slipped for the fifth consecutive month and is now below its year ago level.

Average auction prices for rental repurchase units hit a record high in June. This was reflective of significantly lower volumes, a richer mix of units, and lower average mileage.

Prices for end-service fleet units ease after a record spring. The average auction price for an end-of-service midsize fleet car (mileage and seasonally adjusted) declined in June after reaching consecutive record highs in March, April, and May. Auction volume for these units was up in June, which was reflective of the higher level of new vehicle sales into fleets.

Mid-priced vehicles show some weakness in June. Prices for vehicles in the $7,000 to $9,000 price range showed the biggest pullback in June, but that was after a strong spring. Given that retail credit availability (a key driver of this segment) continues to improve, we suspect the softening of demand was related to the weak labor market and the passing of several temporary factors that stimulated the economy.