September marked the ninth consecutive month in which wholesale prices on used cars and used trucks rose. A new report by Manheim Consulting, however, suggests that the upward trend is slowing.
Manheim Consulting’s chief economist, Tom Webb said, “Some of this pricing has run its course.” In a monthly conference call with auto industry analysts and journalists, he predicted, “Unless retail demand becomes more robust, we might have a temporary fallback.”
According to the consulting firm’s Website, the Manheim Used Vehicle Value Index measures month-to-month changes in used vehicle prices “on a mix, mileage and a seasonally-adjusted basis”. Using this methodology, the firm placed used auto prices in September at a record-high level of 118.5. The index uses wholesale pre-owned vehicle prices as of January 1995, with an assigned value of 100, as its benchmark.
September’s 118.5 marker represented a 7% increase over the same month last year.
The report found that wholesale prices dropped during the last week of September and first week of October. According to Webb, the decrease was “more than expected” and may indicate that they have begun to stabilize, if only temporarily.
On the retail front, dealer sales dropped 14% in September. According to CNW Marketing Research, the decrease was the largest year-over-year decrease seen in any month this year. Webb attributed the slowdown to the bubble created by the federal Cash for Clunkers program. Webb also said that many dealers converted a percentage of the Cash for Clunkers traffic into used vehicle sales to consumers who did not qualify for the federal incentive program.
The September Used Vehicle Value Index reports that, “The supply/demand dynamic that has pushed used vehicle values higher is a multiple-year, not a multiple-month, trend.” However, it goes on to state that wholesale vehicle prices, “appear to be reaching a plateau.” Researchers cite the greater than expected decrease in prices during the last week of September, which was “greater than the normal seasonal pattern” as its basis for the claim.
The report states that wholesale compact and midsize vehicle prices in September “fared poorly” relative to those commanded by used pickups and SUVs in a year-over-year comparison. However, all vehicle classes saw similar pricing increases when viewed over the nine-month period. Furthermore, despite the poor showing in September, wholesale compact vehicles outperformed other sectors of the used vehicle market when averaged over the past three month period.
Finally, the report concludes that sales of used vehicles in the lower price tier, which researchers define as $5,000 and lower, remained stable due to the lower demand. Many analysts had speculated that the Cash for Clunkers program, which resulted in the destruction of hundreds of thousands of used cars and trucks valued at $4,500 or below, would drive pricing in this sector beyond the reach of many lower income consumers.