What the Heck’s Going on With Used Cars and Trucks?
by Wolf Richter, Wolf Street:
About 40 million will be sold this year, and prices are rising.
Manheim, the world’s largest wholesale auto-auction company, reported that prices of used vehicles that went through its auctions jumped again in October. Its Used Vehicle Value Index – which is adjusted for mix, mileage, and seasonal factors – rose 1% from September and 8.1% from a year ago. It started rising in March, months before the hurricanes hit Texas and Florida. It has risen seven months in a row. It’s up nearly 10% from the low point in March. And it looks like this:
Prices in all its categories rose in October on a year-over-year basis:
- Pickups: +11.7%
- Vans: +9.2%
- SUVs and Crossovers: +8.8%
- Luxury cars: +7.5%
- Compact cars: +6.6%
- Midsize cars: +1.3%
Manheim ascribed the rising prices to two factors: One, strong retail demand; and recently the replacement demand after the hurricanes. This along “with a reduction in available supply has caused wholesale inventories to tighten,” it said. “The impact to the wholesale market was widespread, resulting in abnormal wholesale price gains for another month.”
Used-vehicle unit sales in October rose 3% year-over-year, according to Cox Automotive estimates. The Seasonally Adjusted Annual Rate (SAAR) of sales was 39.7 million vehicles in October and 41 million in September.
Used-vehicle sales for the whole year 2017 could set a record north of 40 million, up from 38.5 million in 2016 and 38.3 million in 2015. By comparison, new-vehicle sales in 2016 came to 17.5 million, a record that sales in 2017 may not reach.
Vehicles less than four years old are the dominant category due to the influx of cars and trucks coming out of rental fleets that are typically one or two years old, and lease returns that are typically two to three years old. According to Manheim, so far this year in that segment, retail sales jumped 14%.
But it’s not so clear-cut.
Used vehicle retail sales in the third quarter, according to Edmunds, declined 3.2% year over year to 9.36 million units, from a record Q3 in 2016 of 9.67 million units. The report blamed the hurricanes, “as major markets in Texas and Florida both experienced a drop-off in sales.”
About 6.46 million units in Q3 were sold by independent dealers. The remaining 2.9 million units were sold off the used-vehicle lots of franchised new-vehicle dealers.
Prices rose – but only a tiny bit, according to Edmunds. The average transaction price for a retail used vehicle in Q3 was $19,402, a gain of only 0.9% from a year ago ($19,232). This comes after the average transaction prices rose 17% over the five years from Q3 2012 to Q3 2017.
Average mileage on a used-vehicle transaction fell to 52,648 miles, down 14% since Q3 2012. Newer vehicles are gaining share. Vehicles that are three years or newer accounted for 59.4% of sales, vs. 46.3% in Q3 2012.
“This is largely due to the pipeline of low-mileage lease returns that continue to hit the used market in record numbers,” Edmunds said. As a result, “an overabundance” of these newer used models is “sitting on dealer lots for longer than older – and less expensive – models.”
These newer, low-mileage vehicles carry the highest price tags that represent the upper corner of the price spectrum, with pricing that rivals that of new vehicles. This presents the industry with a dilemma that is only primed to get worse. High levels of lease returns coupled with increasingly stringent mileage limits will feed an expanding pool of low-mileage used vehicle inventories that have proven to have a limited buying audience.
Thus the used inventory is “mismatched with demand,” Edmunds said. “While more consumers are searching for affordable transportation, the bulk of retail used inventory is made up of 3-year-old and newer used vehicles.”
The older higher-mileage units are selling like hot-cakes because they fit the budgets of used vehicle buyers. But lease returns are hitting the market “at unprecedented rates and will exacerbate the disparity between what is desired and what is available in the used market.”
Prices are rising faster at the low end: “Despite slightly stagnating values for newer vehicles, values are consistently higher for 10- to 15-year-old vehicles,” Edmunds said. “The age group represents slightly less than 10% of the sales share, but this pricing strength does help to buoy the overall values.”
Another voice, J.D. Powers’ Used Vehicle Price Index had been on the forefront for years with declines in used vehicle wholesale prices. The index dropped 13% from the peak in the spring of 2014 to the trough in the spring of 2017, with a good part of the plunge happening in late 2016 and early 2017. But in September (October data is not yet available) prices rose for the second month in a row, pushing the index up 3% from the low this year. It remains down 6.6% year over year.
So the consensus is prices are rising — but the degree is in the eye of the beholder.
Read More @ WolfStreet.com
Source: https://www.sgtreport.com/articles/2017/11/15/what-the-hecks-going-on-with-used-cars-and-trucks
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hurricanes
Maybe look at new car sales and see how many are electric? If they’re slowing production of fuel driven cars and raising production of the Chevy volts and Tesla’s, would it add to the value of the last version’s and now vintage gas guzzlers?? Just a guess…
One reason is the amount of money saved. I asked a friend of mine why he did not lease a car? He pointed to his old used car that he paid only $2000 for it about 10 years ago. All paid up when he bought it.
No worries about monthly payments.
Meanwhile they are crushing cars that have never been on the road. Check out the huge car lots on youtube full of surplus new cars.
When new cars are about 60-70% if the price of a house in some markets, you really have to want to impress people you don’t know to buy a new car. Many new cars suffer extreme depreciation in the 1st and 2nd years. New cars are full of electronic wizardry that can, and will fail, and is extremely expensive to fix. My ride is a 2002 that runs perfectly and looks almost new. No new cars in my future…… I hope.