ATLANTA -

Manheim economist Tom Webb admits he’s usually not as upbeat as some other industry prognosticators, especially this time of year as the North American International Auto Show ramps up in Detroit.

However, during his quarterly conference call Monday in conjunction with the latest Manheim Used Vehicle Value Index, Webb spoke glowingly about several elements of the retail and wholesale market, focusing on what gains in new-vehicle sales could do.

“Certainly the volumes improved throughout 2010,” Webb began, noting that new-vehicle sales settled at 11.6 million units last year. “Indeed for one of the first times in a long, long time, my forecast for volume is slightly above the consensus. I do believe there is a great probability for an upside surprise.”

Many other analysts are expecting new-vehicle sales to be about 12.5 million units this year. Webb thinks it could be even better, brining good news to more than just franchise dealers.

“If we get north of 13 million — which I think is very likely — that’s a very sizable gain from the 11.6 million from last year,” Webb surmised. “The auto industry, especially after restructuring, everyone can make a lot of money in that sort of environment from the manufacturers, to the suppliers to the dealers, everyone.”

As new-vehicle sales help fuel profit-making, Webb thinks conditions could become more favorable for auctions and used-vehicle dealers, too, especially when looking at wholesale volume.

“The higher retail volumes of new- and used-vehicle sales will lead to higher dealer consignment volumes,” he predicted for 2011. “They did so last year as well but the gain last year was constrained by shifts in dealer behavior in the market which meant dealers were holding onto more of their trade-ins. I do not expect a shift back in that behavior."

While Webb believes wholesale volumes will increase, he’s not expecting prices to tumble significantly.

“The fundamentals are still there for strong prices because relative to demand supply will be somewhat constrained,” Webb conceded. “The increases in volumes are going to come from dealer consignment. As I look at increases in dealer consignment, that sort of supply does not negatively impact prices because it arises from strong retail activity in the market.

"When you have big increases in commercial consignment volumes at auction, that can depress prices because it might not have come about because of increases in the retail market,"he continued. “For example, if you had lots of repos or some off-lease units or a particular unit because they were put out at the wrong time, then that’s going to depress prices in terms of supply.

“Generally speaking, rises in dealer consignment volumes is not a negative to pricing,” Webb added.

Latest Manheim Index

The Manheim Used Vehicle Value Index closed 2010 by reaching its highest level ever. Webb calculated the December reading at 124.4, meaning prices rose 5.9 percent for the year.

Webb put figures to the wholesale roller-coaster that’s played out during the last three years. On an annual average basis, Webb explained the increase in wholesale prices in 2010 (up 7.4 percent) and 2009 (up 5.1 percent) were the largest and the second-largest in the index’s 16-year history. Those jumps came on the heels of the largest annual decline in wholesale pricing — a drop of 6.3 percent in 2008.

“It’s been a rise so great that some have even suggested a bubble,” Webb shared about the 2010 surge. “But let me put it into a larger historical context.

“Consider for example the compact cars being sold today at auction are nothing like those three years ago, six years ago and certainly not 16 years ago,” Webb offered. “The point being is there should be an upward drift in the index in my opinion. And with the index now at 124.4, that means adjusted prices have risen 24.4 percent over the last 16 years. In other words that’s a compound rate of growth of only 1.4 percent.

“We’ve had three consecutive years of very big movements in wholesale prices. It is my hope and my expectation that the future movements will moderate,” he went on to say.

Off-Rental Prices Remain Strong

Webb continued on by stating rental risk prices — not mix-adjusted — showed virtually no seasonal decline in the fourth quarter.

“That’s a testament to a well-managed model-year changeover and the ability of manufacturers and dealers to keep new-vehicle transaction prices on the rise,” Webb insisted. “Likewise, average prices for rental repurchase units sold at auction remained stable in November and December, despite an increase in average mileage.”

The Manheim economist went on to praise how rental companies and OEMs coordinated their efforts last year.

“Even though new-vehicle sales into rental rose 25 percent last year, it was not the case of manufacturers dumping units onto the rental car companies,” Webb pointed out. “These were purchases that arose from legitimate business needs.”

Higher Volume, Prices for Commercial Fleet Units

Webb indicated mileage-adjusted auction prices for end-of-service fleet units were strong throughout 2010.  He determined mileage- and seasonally adjusted prices for end-of-service midsize fleet cars reached an all-time high in the first half of last year and came close to reaching that level again in the fourth quarter.

A similar index for end-of-service pickup trucks reached an all-time high in the second half, according to Webb.

“Like rentals, commercial and government fleet purchases in 2010 stemmed from legitimate business needs, not heavy discounts,” Webb noted. “Government purchases for obvious reasons declined off by almost 10 percent in 2010.

“If we combine the two, we come up with almost 675,000 units which represented an increase of nearly 16 percent. That’s still off by more than 1 million units from the high points of 2006 and 2007.”

Most Market Segments Show Sizable 2010 Gains

Webb moved along with his discussion by mentioning on a year-over-year basis, vans — especially full-size units — had the largest price gains. In fact, vans were the only segment that jumped by double digits (12.5 percent).

Pickups almost hit that mark, too. Webb computed the 2010 price gain for pickups at 9.5 percent.

However, Webb noticed luxury cars and SUVs underperformed the overall market. Specifically, luxury cars moved only 5.2 percent higher.

“On an annual average basis, relative price changes for the various market classes were as one would expect more closely aligned,” Webb explained. “Vans and pickups were the strongest segments. Midsize and luxury cars lagged behind the overall market, but each still had a gain in excess of 5 percent.”

Sizable Gains for Leasing

Webb wrapped up his quarterly call by touching on 2010 gains in lease originations. The amount moved up to 1.7 million from 1.1 million in 2009. However the amount is still below the 2 million mark, a figure Webb said the industry achieved each year between 1998 and 2008.

“As the capital markets improved, there was great access to funds and that enabled the lessors to return to market,” Webb noted. “And higher residual made it profitable for them to do so. You add those two courses together and we ended up with an increase in new-lease originations of almost 50 percent.

“From the standpoint of the wholesale market, however, we still have to wrestle with that reduction in off-lease units that are sort of ‘baked in the cake.’ But it’s possible it could shift as people are pulled out of leases early,” he concluded.