The August wholesale auction price index hits a record after the longest series of year-on-year price increases since 2001.
Prices for used vehicles at wholesale auctions in the US increased 1.1% in August compared to August last year, reaching a new record, according to the Used Vehicle Value Index. Of Manheim, the largest auto auction house, with about 8 million vehicles through its auctions annually. The index is adjusted for mix, mileage and seasonality, but not for hurricanes and new vehicle market dynamics.
In the fall of 2017 and 2018, wholesale prices for used vehicles experienced extraordinary spikes, attributed to the effects of hurricanes that were thought to have destroyed hundreds of thousands of vehicles, driving prices up. When those theories were exaggerated, prices fell dramatically during the winter in both years:
August was the 31st consecutive month of year-on-year price increases, the longest period of year-on-year price increases since April 2001. It exceeded 29 months of year-on-year price increases from May 2009 to September 2011 – the period following the collapse of the automotive industry during the financial crisis.
The 2009-2011 price gains were driven first by the basic rebound from the 2008 crash and then by the “Cash for Clunkers” program that began in July 2009. Cash for Clunkers was supposed to boost new vehicle sales to help rescue automakers. Congress had allocated $ 3 billion in two stages, which disappeared in months.
Car buyers were given this cash to trade in their “junk” and buy a new vehicle. The engines of the exchanges under the program were destroyed and the vehicle went to the salvage depot in search of parts.
As an unintended consequence, the program destroyed a portion of the most affordable used vehicles, another blow to low-income car buyers. By removing this supply of affordable cars from the market, Cash for Clunkers drove prices up across the used vehicle scale.
This year-over-year price change graph from the Manheim Used Vehicle Value Index shows how extraordinary the current 31-month series of price increases is, having now surpassed the 29-month series after the financial crisis:
After the effects of the financial crisis and cash for scrap wore off, wholesale prices more or less stabilized from mid-2011 to May 2017, when they exploded again, and the index hit a new record in August 2019:
But the 1.1% gain in August was the smallest gain in the 31-month series of gains, as wholesale prices appear to have encountered resistance.
A big contributor to this slowdown in price gains was the near-fixed average price (+ 0.2%) of midsize cars that earlier this year had seen price increases in the range of 5% to 7%.
Midsize cars and compact SUVs (SUVs based on a car platform) are the largest categories on the auction market, and compact SUVs have overtaken midsize cars for the first time in 2018, according to data from JD Power. . Based on current volume, more than 700,000 vehicles in each category are likely to be sold at auction in 2019.
But midsize cars are dead on new car dealer lots. They are at the center of what I call Carmageddon, the long-term collapse of “car” sales and the surge in “truck” sales. But “trucks” are SUVs, compact SUVs (which are essentially cars), pickup trucks, and vans:
As new vehicles, midsize cars are too expensive for people looking for an affordable car and too small for SUV- and truck-loving Americans who can afford more. But car rental companies buy large numbers of midsize vehicles and, about two years later, sell them through auctions. Dealers buy them there and put them on their lot as used vehicles, and that’s where Americans have been shopping for their affordable midsize cars.
Another factor in the slower year-over-year price gains in August was the performance of compact cars, the third-largest category in the auction market. Like midsize cars, like a new vehicle, they are the core of Carmageddon. But rental fleets buy them in bulk and two years later hold them at auctions, where dealers buy them to put on their lots as affordable used cars.
Compact cars had seen modest price increases year-over-year in early 2019, but in August, prices fell 2.7% from August last year:
The used vehicle market is much broader than the auction market and includes retail sales at franchised and independent dealerships, including retail operations by rental fleets, along with person-to-person used vehicle sales. . The estimated sales volume of the used vehicle market in 2019 of approximately 40 million vehicles far exceeds the estimated sales of 17 million vehicles in the new vehicle market.
For the general used vehicle market, and not just auctions, prices increased 2.1% through July, compared to the same period last year, according to the successor to the NADA Used Car Guidelines, which had been acquired by JD Power in 2015, and is now called JD Power Guidelines for used cars and light trucks. The report attributes price growth in the general market this year to:
- New Vehicle Prices Now So High They Cause “Affordability Issues”
- Large number of late-model off-lease vehicles entering the used vehicle market
- And “increased dealer demand for used vehicles,” based on increased retail demand for used vehicles due to the “affordability concerns” mentioned above.
In August, total used vehicle sales volume increased 1.8% year-over-year, according to estimates from Cox Automotive, which owns Manheim.
On the new vehicle side, despite weak sales to retail customers, fleet sales have been strong so far in 2019, rising 7.3%, according to Cox estimates. Large purchases by rental fleets will be a major source of supply for the used vehicle market in the future, where more and more Americans will seek affordable vehicles after exiting the new vehicle market.
But these are the good times. And automakers are not amused. Read… Subprime auto loans explode, delinquencies at 2009 level, biggest 12-month increase since 2010
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