REDWOOD CITY, Calif. -

Thanksgiving dinner might be on the table at about the same time OPENLANE expects significant wholesale price declines.

As the May OPENLANE Market Index hit 110 — the fourth time it’s been at this level or higher in the past two years — predictions about it receding anytime soon didn’t come from Nagi Palle, OPENLANE’s vice president of analytics.

Palle shared with Auto Remarketing Thursday that, “Typically you should see a falloff in some of the prices as we get into late fall and fourth quarter. I think that’s where opinion is a bit uncertain.

“What we expect is pricing to remain strong,” Palle continued. “I look at used-car retail volumes and they’re almost dead on in terms of past years. I think there’s a feeling that the used-car market is stronger than it is. But when you actually look at the numbers, the market is pretty stable; maybe it goes up or down a percentage point.

“But the wholesale supply is down significantly, so we expect wholesale prices to remain pretty strong over the next few months,” Palle went on to say.

After sliding between January and March, OPENLANE’s index reading has been on an upward climb since, settling just 1 point below its all-time high of 111 established in both September and December of last year.

“The summer months are always strong in the wholesale business due primarily to the retail market, but our OPENLANE Index is as high as it’s been in while,” Palle acknowledged.

“Over a two-year trend, prices are up about 14 to 15 percent, which is pretty significant,” he added.

Price Movement by Vehicle Segment

Moving along with May’s report, OPENLANE determined car prices increased last month, ending 3 percentage points above April of last year.

Contained within that segment, Palle told Auto Remarketing what dealers are experiencing: Prices for compact and fuel-efficient models are “through the roof. That’s what’s driving the price variance right now.”

But like overall wholesale prices, Palle doesn’t think compact cars can keep going on the path they’ve traveled the past two months, a journey that’s pushed wholesale prices more than 10 percent higher in response to fuel costs.

“When a segment goes up 10 or 12 percent in pricing, that’s always a bit of an anomaly, It’s not sustainable,” Palle insisted. “It’s not like a small car is always going to be worth 10 percent more than it was two months ago. Eventually it settles down.”

Two segments OPENLANE tracks moved little if at all in May.

Palle said minivan prices increased slightly, up 1 percentage point from April levels, while SUV prices were flat in May, ending even with April.

However, the segment that dropped — trucks — slipped by 1 percentage point from the prior month, extending a downward slope that’s been fairly consistent since May of last year.

“The truck market has really been hammered,” Palle began. “Fuel prices have clearly had an impact, but it speaks to the larger macroeconomic environment which relates to infrastructure spending and construction.

“The correlation between construction spending and the truck market has always been very strong over the last 20 years,” he continued. “Given where the housing market is or lack thereof in terms of housing starts and construction, that’s almost like a double-whammy on the truck market. It’s a compounded effect between both an increase in fuel prices as well as a lack of momentum in the housing sector.”

Dealer Interest Comes in Mixed

Turning next to OPENLANE’s look at dealer interest by vehicle segment, the trends varied depending on the unit.

Palle indicated dealer interest in cars was flat in May but ended 14 percentage points ahead of the same month last year. He noted dealer interest in minivans ticked down versus the prior month but exceeded May 2010 levels by 13 percentage points.

The OPENLANE analyst went on to note SUVs’ interest was also flat last month and ended 16 percentage points below May 2010 levels.

While dealer interest in trucks increased versus April, the reading came in 29 percentage points below May of last year.

Looking Into the Rest of 2011

Auto Remarketing wrapped up its discussion with Palle by asking about how the overall wholesale market behaved during the first half of this year and what could be ahead as the second part of 2011 begins in less than a month.

“Going into the year, clearly we had a pretty good understanding of where the supply was going to tighten and what impact it might have on volumes. We did expect that tension between supply and demand,” Palle noted. “But what threw us all off was the Japanese crisis.

“The impact that has had is the franchise dealers have been gobbling up every car they can lay their sight on because of the new-car tight supply,” he continued. “That has led to even more of what I could call a supply-demand tension in the market, especially for independents. The franchise dealers are hanging onto every car they can get.

“That’s a part nobody could forecast, a catastrophic event,” he added.

Because Japanese suppliers produce parts for more than just Asian automakers, Palle said the entire industry was left in a fragile spot.

“The OEMs have never experienced something like this. Many people don’t understand this, but a car has 15,000 parts, and OEMs don’t know how bad the problem is until they start building the cars and run short of parts. One or two parts can cause a fairly substantial supply disruption,” Palle explained.

“As the OEMs have figured out, the delays have frankly been longer than what they expected from day one after the earthquake,” he surmised. “Now we’re looking at late fall as the best case in terms of getting all of the supply back online. That will continue to lead to some supply and demand imbalances in the market.”

Beyond new-vehicle supply, Palle sees another fact that could sway how the wholesale market behaves as the year continues.

“The one thing we’re beginning to observe is sort of a softening of retail,” Palle stated. “I think the general macroeconomic concerns are emerging. Is there a double dip in housing? Is unemployment going to way back up above 9 percent? There are many factors that may soften the demand further.”