Look for another 1.6% increase in wholesale vehicle values this month, which would make it the third-strongest May of the last two decades, J.D. Power Valuation services said in an analysis Wednesday.

Cox Automotive said last week that its Manheim Used Vehicle Value Index for the first half of the month was at 222.7, beating May 2021 by 9.7% and the entirety of April by 0.7%, on a mix-, mileage- and seasonally adjusted basis. 

Unadjusted, wholesale prices for the first half of May are up 12.1% year-over-year and 1% from April, according to the Manheim index.

This growth in wholesale prices is part of a rapidly climbing overall used-car market this month, which J.D. Power’s Jonathan Banks says underscores the role of pre-owned as the market vies for replacement vehicles.

“May will be the third consecutive month in which wholesale prices increase, placing them 37.2% higher year-to-date than a year ago,” Banks said in the company’s May automotive forecast. “On the retail side of the market, used prices remain near April 2022's all-time high, while used vehicles continue to fly off dealer lots at a rapid pace.”

In fact, it is taking just 39 days, on average, for used cars to sell, Banks said.  

In a separate analysis, Black Book estimated used retail turn rate was below 35 days for the week ending Saturday. While that “remains stagnant” from recent weeks, it’s a marked decline from March turn rates, which were above 44 days.

And the quicker turn times are amid average retail prices (more than $31,000) that are roughly 14% above year-ago levels, the J.D. Power data shows.

“May’s wholesale and used retail results reinforce the importance of used-vehicle operations as dealers and consumers alike continue leaning on this sector of the market to help fulfil replacement vehicle demand,” Banks said.

Perhaps this “leaning” is evident in the prices dealers are willing to pay for trade-ins. J.D. Power’s data shows that equity on trade-ins this month is likely to reach an average of $9,992.

That would be a record high and beat year-ago levels by nearly 60%.

However, trade-in values are something that J.D. Power is paying close attention to for its impact on the new-car market. 

In comments on new vehicles, J.D. Power's Thomas King said: “Even with elevated trade-in values, the average monthly finance payment is on pace to hit a record high of $687, up $90 from May 2021. That translates to a 15.1% increase in monthly payments from a year ago, which is just below the 15.7% increase in transaction prices.

“The growth in transaction prices means that, even though the sales pace is down 20.9% year over year, consumers will spend $45.4 billion on new vehicles this month, the second-highest level ever for the month of May but down 15.5% from May 2021,” he said.

King later added: “Three metrics in June that will demand focus are pricing, interest rates and trade-in values. The combination of future interest rate increases, along with elevated new-vehicle pricing levels, will present a challenge to sustaining the current ‘Goldilocks’ economic environment. If used prices soften, so will trade-in values, which will reduce consumer purchasing power.”

Turning to another source of used-car inventory, dealers are also grabbing all that they can at auctions, too.

Black Book estimates that sales rates in the lanes were at 73% for the week ending Saturday. Not since October has it been that high, the company said.

“Sales rates at the auctions continue to be strong as the potential for new vehicle inventory continues to look grim,” Black Book said