Used Vehicle Prices Declined in June

Used car prices have increased steadily over the last six months. Now, according to the Manheim Used Vehicle Value Index, the numbers for June show a slight decrease from May to June, although they did increase year over year.

Monthly figures from the Manheim index show that it stood at 120.2 in June. That was lower than May’s 121.0 and higher than last June when the index stood at 114.1.

Chief economist for Manheim, Tom Webb, believes that used vehicle prices dropped due to the ceiling created by new vehicle prices. The current state of the economy and worries concerning unemployment also kept prices down.

Webb said there are fewer current-year and year-old models on the market now due to fewer rental cars being repurchased by the manufacturers and lower numbers of company-owned vehicles being placed back on the market. He also said that the late model used vehicles help set the pricing trends for the wholesale market.

He told analysts and reporters in a recent conference call, “The lack of volume has weakened that transmission mechanism.” The lower inventory numbers have enabled dealers to get higher new vehicle transaction prices and have caused the resulting rise in new car prices and profit margins this year.

Webb said, “There’s nothing that can take a dealer’s focus away from selling used vehicles more than having a 100-day supply of new vehicles in the lot.”

Web also provided some interesting numbers regarding overall industry averages:

  • Sales of new vehicles into rental fleets for June are up 62% compared with last year, and up 56% in the first half of this year compared with the first half of last year. Webb predicts that around 1.6 million vehicles will be sold industry-wide to rental companies this year.
  • Auction prices for used rental vehicles resold by the manufacturers averaged $22,000, which is a record high.
  • Leasing will be much higher than last year; it is expected to increase 33% compared to last year. More leases are possible due to the increased availability of credit, says Webb. The higher residual values have made it profitable.

According to Manheim’s survey, the weakest demand in June was for used vehicles in the $7,000 – $9,000 price range. The decrease in demand for used vehicles in that price range is being attributed to “the weak labor market and the passing of several temporary factors that stimulated the economy.”

Manheim’s Web site states, “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.”

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