Wholesale vehicle volumes are expected to decline for the third straight year, with a 7% decline projected for 2022, according to wholesale flow forecasts included in Cox Automotive’s latest Manheim Used Vehicle Value Index presentation.

The biggest driver in the declining numbers of cars making their way into wholesale has been the drop-off in lease returns, as it becomes more advantageous for dealers and consumers to keep those vehicles. Meantime, the dominant force in wholesale volumes continues to be units consigned by dealers. 

Specifically, there will likely be 9.5 million units flowing into wholesale channels this year, down from 10.1 million in 2021, Cox said.

They’re expected to drop 4.5% next year and bottom out at 9.0 million, before climbing to 9.6 million in 2024 and reaching 10.2 million in 2025.

Still, even those gains would not bring wholesale volumes anywhere close to where they were just three years ago, when volumes were at 13.1 million units.

“Most importantly, please take away from our forecast that we forecast a wholesale market that tightens even more in 2023, and we do not see getting back to 2019 levels within our planning horizon,” Cox Automotive chief economist Jonathan Smoke said in a conference call with the industry and media on Friday.

“The declines in wholesale volumes through the pandemic have been from big drops in commercial sources,” Smoke said. “Commercial, though, has hit bottom and will start growing. But dealer volumes are where we will see declines in 2023.”

Smoke then provided a breakdown of expected volumes by consignment type, beginning with repossession volume.

After two years of declines, that’s expected to tick up to 1.2 million in 2022 and remain at that level in 2023 before climbing to 1.3 million in 2024 and 1.5 million in 2025. That’s still lower than 2019 numbers, when repo volume in wholesale reached 1.7 million before dropping to 1.1 million by 2021.

“Repossessions hit their low in 2021 with a record-low repo rate that was a product of stimulus support, loan accommodations and record used-vehicle values,” Smoke said. “We are seeing repossessions grow slightly in 2022 … but the repo rate will remain well below 2019 levels for several years as high vehicle values give consumers more options, consumers are prioritizing auto loan payments because it is so hard to find an affordable alternative and also because the loan pool has less subprime.”

Next up was off-lease volumes, which has been the biggest contributor to overall volumes declines. After reaching 2.5 million units in both 2018 and 2019 and remaining relatively steady at 2.4 million units in 2020, off-lease volume was cut in half during 2021 at 1.2 million units.

Volumes are expected to tank this year at 400,000 units, where they’ll likely stay in 2023 before climbing to a still-low 600,000 in 2024 and 1.0 million in 2025.

“The decline in off-lease returns, or the lease maturities that actually flow into the wholesale market, have produced the single largest decline in volumes in wholesale,” Smoke said. “This is a function of record values that have driven return rates to a historic low of 9% projected for 2022, when normal is greater than 60%. As values decline, the return rate will slowly improve, but even so, in future years, that higher return rate will be against much lower lease maturities.

“A key takeaway from this is expect scarcity in 1- to 3-year-old vehicles for years to come,” he said.

Commercial consignment overall reached a “bottom” in the middle of this year, Smoke said in another industry call late last month.

“What really caused the wholesale market to dramatically collapse at the beginning of the pandemic was the rental activity, but then we very quickly moved because of the rise in vehicle values to the biggest source of decline was leased vehicles no longer showing up at auction, because they were increasingly being bought by the consumer … or by the grounding dealer because of the positive equity and the strong pricing dynamics that simultaneously gave them a unit to retail, plus a boost to margins.

“Well, the average equity position of lease vehicles remains around $6,000 in the positive, when historically they tended to be negative because of lease subvention. And so that means that dynamic continues and is alive and well,” he said.

As such, the percent of end-of-term leases that go back to the finance company will likely reached a record low, when it typically is north of 60%, Smoke said.

That leads us to the next portion of the analysis: dealer consignment, which Smoke described as the “saving grace” in the wholesale market.

After falling  from 6.8 million to 6.2 million between 2019 and 2020, dealer volumes jumped to 7.0 million in 2021 and are likely to reach 6.9 million in 2022.

However, Cox is predicting dealer volumes will drop back down to 6.2 million in 2023 and hover in that range through 2025.

“The clear positive for wholesale during the pandemic has been surging dealer volumes. Some of those missing off-lease units still flow through wholesale and retail, as dealers played arbitrage and grounded more units. Record retail sales also provided plenty of trades in 2021,” Smoke said.

“The market is still relatively strong and dealers are still purchasing a high percentage of off-lease at grounding. But the volumes are now coming down and next year we’ll see a decline from fewer lease maturities leading to less off-lease arbitrage and fewer trades, also leading to few consignments,” he said. “It should be noted that even with the declines in dealer volumes, with commercial very constrained and only growing slightly, dealer volumes will continue to dominate the wholesale market through our planning horizon.”