Kontos: Less Appealing Used-Retail Prices Impact Wholesale Movements
CARMEL, Ind. — Though April's wholesale prices were up more than 7 percent from year-ago figures, the month-over-month gains slowed down due to the appeal of retail used prices against new-vehicle prices starting to wane, according to ADESA's Tom Kontos.
"Wholesale used-vehicle price growth appeared to moderate in April, as retail used-vehicle prices are reaching levels where they become less attractive relative to prices of new vehicles," he noted.
Specifically, the average wholesale price in April was $10,579, a 7.5-percent year-over-year upswing and a 0.3-percent gain from March.
Explaining the impact of "less attractive" retail used prices on the wholesale market in more detail, Kontos said ADESA Analytical Services determined that that February's average used retail price equaled 58 percent of the average price tag on a new vehicle.
ADESA Analytic Services made this calculation based on the most recent data from the Federal Reserve Board, which was February's information.
"A rule of thumb we have observed over the years is that when the average retail used-vehicle sales price exceeds 60 percent of the average new-vehicle sales price, a portion of used-vehicle demand tends to be 'cannibalized' by new-vehicle sales," Kontos noted. "With wholesale prices growing 4 percent in March and 0.3 percent in April, it is possible that the 60 percent used-versus-new retail price ratio has now been surpassed."
Kontos said one indication that this phenomena is indeed happening is the April results for franchised dealers. Their used sales fell 4.2 percent, he pointed out, citing CNW Research. Their new sales, on the other hand, climbed almost 20 percent.
Meanwhile, independents saw their used sales climb 3.8 percent, "indicating that shoppers who can only afford used vehicles are still plentiful," Kontos noted, adding: "Moreover, tight supplies of used vehicles and the budding economic recovery continue to create upward pressure on wholesale prices, as dealers bid aggressively in-lane and online for needed inventory."
He continued: "Dealers are being aided in their efforts to achieve quick inventory turn and respectable grosses despite higher wholesale prices and tight used vehicle supply by using efficient wholesale and retail tools. These tools include online run lists and inventory management software that allow dealers to employ just-in-time inventory practices."
Continuing on, the average car wholesale price was $9,466, a 6.8-percent rise from the year-ago period. Truck prices climbed 9.6 percent to $11,922.
Among individual segments, full-size vans led the increases with a 34.9-percent price gain, followed by minivans (up 10.2 percent), sporty cars (up 9.1 percent) and full-size SUVs (up 9 percent).
In fact, all but one of the 13 segments that ADESA Analytical Services tracks showed year-over-year increases. The full-size car category was the lone segment whose prices decreased, as its wholesale values dipped 16.6 percent from April 2009.
Compared to March, full-size van prices were down 10.5 percent, mini SUVs softened 2.4 percent and values of full-size SUVs were off 2.3 percent.
All other segments' prices against March were up between 0.2 and 2 percent, with the exception of full-size vans, which climbed 5.7 percent.
"Full-size vans and full-size cars, respectively, recorded the biggest year-over-year price gains and losses, but these segments are small and can often have volatile average price swings based on variations in such things as seller type and vehicle condition," Kontos explained.
"Prices for most segments are moving with the overall market, although mini and full-size SUV prices did take a bit of a hit in April — perhaps due to rising gas prices over the last couple of months," he added. "Minivans registered above-average price gains during the month."
Among seller types, all categories showed price increases. Prices in OEM sales were up 0.7 percent from March and 14.1 percent from April 2009. Fleet/lease prices jumped 1.1 percent from March and 12.4 percent year-over-year.
Prices for dealer consignment were up 13.4 percent over the year-ago period, and up 0.6 percent from the previous month.
Moving on, Kontos noted that at end of April, auction inventory was at 31 days' supply, versus 40 days' supply a year ago, according to ADESA Analytical Services estimates.
Also, data from the Bureau of Labor Statistics indicates that the consumer price index for used vehicles for March was up 16.3 percent from the year-ago period, Kontos concluded.