Current Monthly Index

Wholesale Prices Jump Up Again in May

May marked the fifth consecutive monthly increase in wholesale used vehicle prices on a mix, mileage, and seasonally adjusted basis. The Manheim Used Vehicle Value Index now stands at 109.1, which resulted in the first year-over-gain in pricing since October, 2007.

May's rise in wholesale pricing was a result of continued favorable supply/demand forces, an improvement in consumer confidence, and better availability of retail financing. All of these forces will continue, or strengthen, in the months ahead. But, there still may be possible setbacks in wholesale pricing as a result of stress within the dealer network.

Dismal new vehicle sales push dealer consignment volumes lower. In May, the seasonally adjusted annual selling rate for new vehicles remained below the ten million mark for the fifth consecutive month. Given that retail used vehicle sales have been flat (and actual demand higher), the resulting loss of trade-ins from new vehicles sales (the majority of which re-enter the wholesale market) has caused dealers to aggressively bid for late-model used vehicles.

Bankruptcy and residuals. Our ongoing weekly analysis of the impact of bankruptcy and brand discontinuation on residual values continues to show that affected models (with a few exceptions) continue to perform well in the wholesale market. This, in spite of the fact that, some new vehicle inventory is now being heavily discounted.

In addition to the influence exerted by high cross price elasticities with other models, we believe that the lack of late-model used vehicle supply has disrupted the normal transmission mechanism wherein high new vehicle inventories and incentives drive used vehicle values lower. In addition to low dealer consignment levels of late-model used vehicles, off-rental volumes into the wholesale market were off more than 30% in the first five months of 2009.

The consumer's willingness and ability to buy improves. The Conference Board's consumer confidence index posted large gains in both April and May, which brought the index back to its highest level since September of last year. Not unrelated, the Manheim Index also moved back to its highest level since September of 2008. Consumer confidence is an important indicator of the consumer's willingness to take on a big purchase such as a used vehicle. As an offset, however, April spending and income data clearly showed that households remain in a savings mode. The personal savings rate jumped to 5.7% in April, the highest level since February of 1995.

The consumer's ability to buy has been helped by the greater availability of retail financing. In particular, many lenders have been willing to advance larger loan amounts for a given vehicle.

Wholesale Vehicle Valuations by Market Segment and Consignor Group

Year-over-year price movements by market class reflect last year's abnormal market. Wholesale pricing for large pickups and SUVs is up sharply from a year ago when there was near $4-a-gallon gasoline and heavy discounting for these vehicles in the new vehicle market. And, as the reverse case, current wholesale prices for compact cars are down significantly from their extraordinary high levels of year-ago. Today, it is small cars for which there is a heavy supply of new vehicle inventory.

Off-rental vehicles (both program and risk) continued to have strong pricing, based primarily on significantly lower volumes. Pricing for older, less-expensive, vehicles was also firm in May. The only weakness was in certain market classes for vehicles in the mid-level price points. But, even here, prices were strong for those vehicles in good condition.