November 2008 Used Vehicle Value Index

Wholesale Prices Drop Again in November

After falling by a record 6.0% in October, wholesale used vehicle prices (on a mix, mileage, and seasonally adjusted basis) fell another 5.7% in November. The Manheim Used Vehicle Value Index stood at 98.3 in November, representing a decline of 12.2% from a year ago.

After falling by a record 6.0% in October, wholesale used vehicle prices (on a mix, mileage, and seasonally adjusted basis) fell another 5.7% in November. The Manheim Used Vehicle Value Index stood at 98.3 in November, representing a decline of 12.2% from a year ago.

The retail and wholesale used vehicle marketplaces have been characterized by unprecedented weakness for the last two-and-half months. The poor macroeconomic environment will likely depress retail activity well into 2009. On the wholesale side, the magnitude of the price decline that has already occurred, coupled with the normal seasonal uptick that begins in January, should mitigate the further erosion in wholesale values and bring some improvement to conversion rates. Nevertheless, we expect overall pricing and bidding activity at auction to remain subdued. Today’s “bargain prices” at auction are no bargain if there is no retail demand.

Retail vehicle sales tumble further. New vehicle sales fell 37% in November with all manufacturers posting sizable declines. The seasonally adjusted annual rate, which many analysts had expected to improve from October’s 10.8 million level, in fact, fell to 10.2 million. Restructuring plans offered by the domestic manufacturers in support of their bridge loan requests show the companies are looking for further significant sales declines in 2009.

At some point, this reduction in new vehicle activity will support used vehicle values, as it impacts future supply and further shifts dealer and customer focus towards used vehicles. But, that someday is quite a ways off. Currently, the used vehicle market must deal with the impact of manufacturers increasingly offering incentives – and some pressure for dealers to take new vehicle inventory.

On the used vehicle side, dealer unit sales plunged 16.5% in September and another 19.7% in October, according to CNW Marketing Research. November sales have yet to be released, but conversations with dealers indicate that there was scant, if any, improvement during the month. Both showroom traffic and closing rates remain low.

Consumers continue to hold back. Consumer confidence, as measured by the Conference Board, improved only modestly from its record low level in October. The Present Situation component of the Index continued to fall. The impact on big-ticket purchases has been, and will continue to be, noticeable.

With job losses escalating, the pullback in consumer spending will only intensify. Post-Thanksgiving sales were a mixed bag, as most early indicators showed a strong Friday (propelled by heavy promotions), but the pace of activity had already slowed by Saturday and Sunday.

Wholesale Vehicle Valuations Fall for All Consignor Groups

Auction prices for program cars, which had held up fairly well in the first part of 2008 due to the reduction in volume, declined by more than 17%, or approximately $2,600 per vehicle, over the past two months.

Rental risk units during this period showed an even larger percentage decline in price, representing about $2,200 per vehicle.

Auctions prices for end-of-service fleet vehicles over the last two months have declined by a much smaller amount — about 6% or $400 per vehicle. However, these vehicles began their price descent at auction two months earlier than the off-rental units. Over the four-month period, their percentage loss in value is similar to program and rental risk units.

Average auction prices for dealer-consigned vehicles have also shown a double-digit decline over the past two months. Additionally, conversion rates have fallen. In some instances, dealers have been forced to sell what will sell rather than what they want to sell.

 

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