Kontos Explains How Gas Prices Sway 1Q Wholesale Market Behavior

As ADESA’s Tom Kontos reflected on 2012’s first quarter, he didn’t hesitate to tell Auto Remarketing the key story was the run-up in gas prices and the deferential impact it had on small cars versus big trucks.

However, Kontos pointed out what happened in the auction lanes and the wholesale market in general during this year’s opening stanza differed greatly from when gas prices first spiked four years ago.

“What’s different about each subsequent round of these events going back to 2008 when we first saw $4 gas nationally is that year we were dealing with a pretty big surplus of SUVs and pickup trucks. Those vehicles had been very popular as new vehicles just a few years before that, so they were coming back into the used-car market in big numbers,” Kontos explained.

“We didn’t see anywhere near the detrimental impact on truck prices that we had seen back in 2008 because the supply of trucks isn’t anywhere near excessive as it was in that year,” he continued.

To reinforce Kontos’ points, ADESA Analytical Services found March full-size SUV prices jumped 10 percent month-over-month. But Kontos looked at the pattern for that vehicle segment for the first three months of the year and found that the March price ($13,858) was nearly identical to both the level a year earlier as well as back in January.

“They’re back pretty much where they were at the beginning of the year,” Kontos insisted. “It looks like they haven’t even taken a hit when you net it all out. 

“Now the demand is more concentrated on folks who actually need the vehicles for towing and hauling as opposed to keeping up with the neighbors,” he continued. “In 2008, the SUVs were still a result of years past when maybe they were oversold to people who really didn’t need that vehicle. So when they came back in great numbers, the dealers didn’t need to stock up their lots with anywhere near the amount as there were in the market. Today, supply and demand are in much better balance.”

Meanwhile, Kontos acknowledged prices for smaller, more fuel-efficient models is climbing. ADESA spotted the March price for compact cars is 5.9 percent higher than the previous month, up to $7,365. However, the ADESA economist believes rising gas prices haven’t impacted the segment as much as they did a year ago and especially back in 2008.

“Small cars still benefitted from a run-up in gas prices, which was primarily concentrated in February,” Kontos stated.

March Price Analysis

Focusing solely on March figures, ADESA determined that in contrast to the mild year-over-year softening seen in January and February, wholesale used vehicle prices rose at a greater than seasonal pace in March, reflecting continued tight supply and strong retail demand.

Kontos said average auction prices climbed above $10,000 for the first time since last June and more than matched last year’s March/April Spring tax season peak.

To be exact, ADESA’s monthly analysis revealed wholesale used vehicle prices in March averaged $10,612 — up 7.5 percent compared to February and up 0.6 percent versus March of last year.

ADESA also noticed manufacturers registered a 6.1-percent month-over-month price increase and an 18.8-percent year-over-year rise, reflecting what Kontos stressed was the continued tight supplies of late-model used vehicles.

Kontos went on to mention fleet/lease consignors experienced a 7.5-percent sequential price increase and a 3.5-percent annual increase.

He added dealer consignors saw a 7.7-percent average price increase versus February and an 8.5-percent uptick versus last March.

Used Sales Recap

In his monthly commentary, Kontos cited CNW Research data that showed retail used vehicle sales in March climbed 5.4 percent year-over-year for franchised dealers but slid 3.2 percent for independent stores. 

Kontos thinks the trends, “possibly reflecting better used vehicle shopper traffic and sales at franchised dealerships as a complement to fairly strong new vehicle sales during the month." On a month-over-month basis, retail used vehicle sales were up by over a third for both groups.  

The ADESA economist also pointed out Autodata’s information reported earlier this week by Auto Remarketing that highlighted how certified pre-owned sales in March spiked to record levels — rising 16.8 percent versus February and 7.7 percent versus the prior year.

Upbeat New-Vehicle Sales Outlook

Kontos admitted he might have to rethink his new-vehicle retail sales forecast after seeing what franchised dealers turned during the first quarter.

“I’m probably a little more bullish on new-vehicle sales for the year,” Kontos told Auto Remarketing. “Coming in, I was among the lower-end of forecasters. I thought the year might come in at 13.5 million, which would still have been a hefty increase over last year’s 12.8 million. But now I’m thinking we’re probably closer to a year where we may approach 14 million. I’ve probably been conservative in my expectations for new-vehicle sales.”

What’s catching Kontos’ attention most is not the new-vehicle SAAR readings, but how dealers moved about 400,000 more units during the first quarter of last year compared to the same span in 2011.

“If that holds for the year and we see that for all four quarters, that would be a 1.6 million increase. If that type of pace were to continue, which I don’t think it will because the tail end of last year was strong, but you could still see an increase of well above 1 million units. I only predicted a jump of 700,000.

“That’s probably where I underestimated the strength of new-car sales,” he continued. “That drives the business in general. That brings in more traffic. Some of those shoppers are going to buy used cars. That’s going to drive used-car demand and that’s to help sell the cars that dealers are buying at auction. It’s also going to generate some fresh trade-ins so that might alleviate some of the tight supply.”

Update on ADESA DealerBlock’s Transition to ADESA OPENLANE

ADESA president and chief executive officer Tom Caruso used the company’s blog to give dealers an update on the integration of OPENLANE, the online wholesale operation it acquired last year.

“My goal is to keep you informed of our progress because with any major construction project, there’s bound to be some dust along the way,” Caruso began.

“Nine of our auction locations have already been successfully migrated: ADESA Birmingham, ADESA Houston, ADESA Golden Gate, ADESA Austin, ADESA Buffalo, ADESA Des Moines, ADESA Lansing ADESA Knoxville and ADESA Raleigh,” he continued. Cars from these nine auctions are being offered and sold on OPENLANE today. More auction inventory is being migrated weekly.

“Now, we’re getting ready to integrate the rest of our U.S. auction locations,” Caruso added. “We’re doing everything we can to ensure the transition is as smooth as possible. Despite our best efforts, we may not have all of the answers right away. But we’ll get them.

“Please call us and talk to your local auction if you have any questions or if you encounter any issues,” he went on to say. “Thank you for your support during this transition. We appreciate your patience as we work to deliver more services and better choices for our customers."

If dealers have questions about ADESA OPENLANE, they can call (866) 969-0321 or email openlane_info@adesa.com.

And if store managers need assistance using using ADESA OPENLANE, they can call ADESA Customer Connection at (888) 526-7326 or email customerconnection@adesa.com.