Used-Car Prices Rise for Bad Reasons, Manheim says

Arlena Sawyers Automotive News July 7, 2009 - 3:32 pm ET

Buyers and sellers of wholesale used vehicles are benefiting from rising used-vehicle prices, but the underlying causes for the increases are "universally bad," says one industry analyst.
The main reasons: fewer retired rental cars and, because of weak new-car sales, trade-ins.
Tom Webb, Manheim's chief economist, said wholesale used-vehicle prices are being buoyed by the shortage of vehicles at the nation's auto auctions in the first half of 2009.
Those strong price increases are "universally good" because higher prices mean consumers have more equity in their trade-in -- which can be an early signal of an uptick in the economy and rising new-vehicle sales, Webb said.
The higher prices also are resulting in higher percentages of vehicles being sold at auctions and "better residual and recovery rates for sellers," he said during a conference call today with analysts and journalists. Manheim's Used Vehicle Value Index stood at 114.1 in June, up 5.8 percent from June 2008 and 16.4 percent from the beginning of 2009. Also today, ADESA Auctions reported that the average wholesale price of a used vehicle in June was $10,167. It was the first time the monthly average price exceeded $10,000 since 2008, said Tom Kontos, ADESA's executive vice president of customer strategies and analytics.
"Dealers need used-vehicle inventory and are not getting it as much through trade-ins due to still-low new-vehicle sales," Kontos said.
Webb said that total auction volume was down more than 5 percent through June compared with the year-earlier period. In all of 2008, the industry sold 9.24 million vehicles, a 3.0 percent decrease from 2007.

Through June, vehicles consigned by dealers to auctions and those retired from rental fleets both declined more than 15 percent, Webb said.
The number of vehicles entering auctions from other sources rose, he said. Those sources include end-of-lease vehicles, repossessed vehicles and commercial and government fleets.
Given sagging new-car sales, the shifts in auction volume were predictable, Webb said. For example, citing data from Bobit Business Media, Webb said vehicle sales to rental companies were down 39 percent in the first half of the year.
"The changes, given the normal stability in this industry, were big," he said. "They definitely had an impact on pricing in the wholesale market."