Wholesale Prices Rise Again in August

manheimWhole­sale used vehi­cle prices (on a mix-, mileage-, and sea­son­al­ly adjust­ed basis) increased for the third con­sec­u­tive month in August. This brought the Man­heim Used Vehi­cle Val­ue Index to a read­ing of 124.3, rep­re­sent­ing an increase of 2.1% from a year ago.

The sta­bil­i­ty of whole­sale pric­ing, in the face of ris­ing vol­umes, stands in stark – and wel­come – con­trast to the volatil­i­ty in finan­cial mar­kets. It should not, how­ev­er, come as a sur­prise. The rever­ber­a­tions of inter­na­tion­al events will not be felt in the used vehi­cle mar­ket unless and until actu­al fis­sures devel­op in our domes­tic econ­o­my. Such a rever­sal of for­tune is a def­i­nite pos­si­bil­i­ty, but it would like­ly require an addi­tion­al buffer­ing by those out­side forces as well as pol­i­cy mis­takes on our part.

The vol­ume / price rela­tion­ship. High­er whole­sale vol­umes nat­u­ral­ly dri­ve prices low­er, all oth­er things equal. And, nat­u­ral­ly, all oth­er things are nev­er equal. As evi­dence, note that a sim­ple regres­sion of adjust­ed prices as a func­tion of whole­sale vol­ume returns no sta­tis­ti­cal­ly sig­nif­i­cant results. Adding in addi­tion­al explana­to­ry vari­ables to cap­ture labor mar­ket and cred­it con­di­tions gives the vol­ume vari­able a sta­tis­ti­cal­ly sig­nif­i­cant neg­a­tive coef­fi­cient; but it is not par­tic­u­lar­ly strong, and the resid­ual errors in the equa­tions remain large.

It’s the avail­abil­i­ty, not the cost, of cred­it. One of the prob­lems in devel­op­ing sta­tis­ti­cal mod­els of future pric­ing is the dif­fi­cul­ty of quan­ti­fy­ing the avail­abil­i­ty of cred­it, as opposed to its cost. And clear­ly, avail­abil­i­ty is the more impor­tant of the two.

In past cycles, cred­it spreads could some­times be used as a rough proxy for avail­abil­i­ty; but our pro­tract­ed peri­od of near-zero inter­est rates has left the yield curve devoid of any his­tor­i­cal per­spec­tive. Note, for exam­ple, that the per­cent­age point spread between the 10-year and two-year Trea­sury note (month­ly aver­age) has been at least 125 basis points since Jan­u­ary 2008. The spread reached half-cen­tu­ry highs dur­ing the recov­ery and even now stands around 150 basis points. Even when the Fed begins it rate hikes, the spread will remain ele­vat­ed – it may even widen. Chances of an invert­ed yield curve pro­vid­ing a heads up to the next reces­sion? Slim.

It’s the time of the sea­son for prices to fall. Sta­tis­ti­cal­ly speak­ing, the largest sea­son­al decline in mix- and mileage-adjust­ed prices occurs between Sep­tem­ber and Novem­ber. Over the past decade, the sea­son­al impact has aver­aged an addi­tion­al per­cent­age point of depre­ci­a­tion in each of the three months. This year, along with the inter­na­tion­al issues (which will like­ly remain tur­bu­lent), our bud­get and debt ceil­ing “debates” will add uncer­tain­ty to the mar­ket.

Rental risk pric­ing recov­ers from July. A straight aver­age of auc­tion prices for rental risk units bumped up from July’s low, but remained below 2013 and 2014 lev­els. The aver­age mileage on rental risk units fell to its low­est lev­el since Octo­ber of last year. Auc­tion vol­umes were down in August after being up sig­nif­i­cant­ly in the first sev­en months of the year. In August, new vehi­cle sales into rental declined 3%, but were still up 5% year-to-date.

Mar­ket seg­ment and con­sign­or seg­ments.. Pick­ups, SUVs, CUVs, and vans con­tin­ued to have high­er prices year-over-year. Mid­size and lux­u­ry cars were also up, but the com­par­i­son was against weak year-ago pric­ing. Com­pact car prices are down 6.7% over the past year.

A straight aver­age of auc­tion pric­ing was up year-over-year for both com­mer­cial­ly con­signed and deal­er-con­signed units. The aver­age mileage on deal­er-con­signed units con­tin­ued to track slight­ly below its year-ago lev­el.



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