Kontos: Dealer Reaction to Current Wholesale Conditions Not Unprecedented

In addition to pointing out the most-recent reasons for climbing wholesale prices — escalating fuel costs and problems stemming from the disasters in Japan — ADESA’s Tom Kontos tried to frame the current market situation in reference to a climate veteran dealers might remember.

Kontos turned back to how dealers reacted during the late 1990s in a relation to a worker strike connected with General Motors.

“Dealers bid aggressively for used-vehicle supply at auction in anticipation of new-vehicle supply shortages,” Kontos recollected. “Wholesale prices rose strongly at that time as well.

“As a result, wholesale prices may continue to rise instead of stabilizing at high levels as previously anticipated,” he added.

This week, Kontos insisted that tight supplies and high demand continue to draw dealers to bid aggressively for available units at both physical and online auctions. 

ADESA Analytical Services calculated wholesale used-vehicle prices in March averaged $10,543 — up 5.1 percent from February, but flat versus the prior year. Analysts noticed prices were particularly strong for cars — which went up 8.1 percent month-over-month — compared to trucks, which ticked higher by 2.3 percent.

Kontos conceded that tight supply and high demand are factors that have been in place for quite some time and were already expected to continue into the usually strong spring selling season.

“However, concerns about availability of new-vehicle supply due to parts shortages and production curtailments resulting from the natural disasters in Japan may have exacerbated the urgency with which dealers are currently approaching their used vehicle inventory sourcing,” Kontos offered.

To illustrate further why car prices are rising quicker than trucks, Kontos reiterated the most influential current factors:

—Higher gasoline prices, which cause dealers to anticipate greater consumer demand for smaller, more fuel-efficient vehicles.

—Concerns about the availability of small vehicles due to supply disruptions in the aftermath of the earthquake and tsunami in Japan.

In other data, ADESA discovered manufacturers registered a 12.2 percent month-over-month price increase and a 17.7 percent year-over-year rise in March. The auction company also determined fleet/lease consignors experienced a 5.9-percent sequential price increase and a 2.7-percent annual increase.

Meanwhile, ADESA indicated dealer consignors saw a 5.7-percent average price increase versus February and a 6.2-percent uptick versus March of last year.

ADESA estimated that auction industry inventory levels stood at 26 days at month-end, compared to 31 days last March, further signaling that used-vehicle supply remains tight.

Based on information from CNW Research, Kontos pointed out retail used-vehicle sales in March were up 2.1 percent year-over-year for franchised dealers and 9.9 percent for independent dealers. On a month-over-month basis, he mentioned used-vehicle sales were up by about 40 percent for both groups. 

Kontos wrapped up his monthly commentary by noting March’s certified pre-owned vehicle sales in March were up 21.1 percent versus February and 11.7 percent compared to March of last year, according to Autodata.