Wholesale prices begin to normalize on usual inventory levels

Dealers may start to notice the wholesale prices at auction slip back into more familiar territory. According to Manheim’s Used Vehicle Value Index mid-month report for September, wholesale used vehicle prices have decreased by 0.9% in the first two weeks of the month, signaling a turnaround in the pre-owned marketplace.

The tiny decrease may seem like a minor victory as the year-over-year Used Vehicle Value Index still represents a 16.0% jump from September 2019.  But as the index has seen multiple double-digit jumps this annum, a stalled index value is a drastic change in momentum for the market.

In contrast, the used car market continues to defy expectations. LotLinx data shows that used car sales for the week of Sept 7 to Sept 13 is over 202,000 units, 18.0% higher than the same period last year.

Used Car Inventory Back to 43 Days

Playing a considerable role in the potential return to used car pricing normalcy, dealers have been able to restock their lots with good pre-owned vehicles. Manheim reports that “used retail supply is back close to a normal level at 43 days.”

While used inventory was difficult and costly to procure in the midst of the pandemic, supplies through auctions like ADESA and Manheim have actually risen higher than normal. The seven-day average is normally 23 days, and currently, it’s increased to 27 days. The pendulum is swinging from a high-demand, low-inventory position to nearly a balanced position with the risk of going too far the other way.

Pickup Truck Prices Remain Elevated

Segmented market analysis shows that the hottest vehicle market in North America – pickup trucks – are much higher priced than the rest of the pre-owned market. Trucks represent a 27.0% year-over-year wholesale price change for September 2020. Pickup trucks are the only segment that exceed the 16% average, aside from Luxury cars at 17.1%, skewing the wholesale market higher.

Lower Prices on Horizon

Dealers can look forward to lower wholesale prices to load up their inventory this fall. Prices for the highly sought-after models in the Three-Year-Old MMR Index have seen the largest decline at 1.2%. As the fall season approaches and sales typically begin to slow, higher inventory levels will likely see the indices dropping further.

Another possibly wildcard for wholesale prices are an increase in rental vehicles that could hit auctions. Herts Global Holdings still needs to reduce inventory in coming months and other rental car companies can be expected to lower their rental risk by liquidating vehicles. Coinciding with the pandemic, rental risk units at auction had mileage approximately 13% lower than in September 2019.

Combined with low interest rates and stifled new car inventory, dealers should expect the used car market to surge this fall and winter. Buyers who have postponed their vehicle purchase during the pandemic will eventually emerge to replace their current cars. With safety and hygiene being factors for shoppers who have never owned cars before, now is a good time for dealers to consider replenishing their inventory in anticipation of a busier than usual fall selling season.

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