ATLANTA — Manheim economist Tom Webb said it's "quite easy
and quite logical to assume" that used-vehicle retail sales will hit an
all-time high before 2015.

Webb backed up his projection by highlighting how
used-vehicle retail sales during the first quarter of 2013 moved 12 percent
higher year-over-year against some headwinds that are slowing other industries.

According to Webb, one of the primary drivers of used-vehicle
sales is the availability of financing.

"On any given day, there are literally hundreds of thousands
of vehicles with owners who would like to trade up to get something a little
bit better if they could do so with an affordable monthly payment. Given the
availability of retail financing, a natural changeover of those vehicles over
time will occur," Webb said last week during Manheim's quarterly conference
call with analysts and the media.

"Sometimes people think of the used side as a need-driven
market where someone has had a problem with a vehicle, and they've got to get
out of it. But in reality, it's driven by the desire to trade up for something
a little bit better," Webb continued.

CNW Research highlighted that the used-vehicle industry posted
its best March performance since 2002, as sales topped 3 million. Based on the
firm's data that goes back to 1993, the best retail sales year for franchised
and independent dealerships came in 2005 when dealers turned more than 30.6
million used units.

For dealers to keep striving toward that best-ever mark,
Webb explained how the market is going to have to perform like it's been doing
so far this year. He noted dealers are selling used vehicles despite
significant consumer obstacles — delays in tax refunds, a rise in payroll taxes
and intermittent spikes in gas prices.

Webb admitted it was "extremely surprising" to see used
sales climb by double digits during the first quarter while other consumer
spending segments such as casual dining sagged during the same period.

"To a certain extent, the used-vehicle market has been
impervious to these factors in terms of retail sales activity," Webb said.

So that's why Webb is so optimistic about used sales.

"On the other hand, I think it's almost impossible to come
up with a scenario where new-vehicle sales hit an all-time high before 2015,"
Webb said.

The Manheim economist recapped that new cars and light-duty
trucks sold at a seasonally adjusted annual rate of 15.3 million units in
March. This performance was identical to the average pace during the past four
months, and it was also consistent with his outlook for the full year.

"To date, the leveling-off in the new-vehicle sales rate has
not brought forth the traditional response: increased incentives. Nor do we
believe it will," Webb said.

"To be sure, lease support has grown and the easing of
retail financing continues (longer loans at low rates to customers with lower
FICOs), but the actions have not been excessive or irresponsible," he
continued.

"Indeed, given the strength of used-vehicle residuals and
the exceptional way loan portfolios have performed of late, it is likely the
favorable lease and credit cycle has considerably longer to run," Webb went on
to say.

Manheim Index Declines in March

During Friday's call, Webb also discussed the latest Manheim
Used Vehicle Value Index.

Wholesale prices (on a mix-, mileage-, and seasonally
adjusted basis) fell in March. It was the third consecutive monthly decline,
and it brought the index reading to 120.4, which was 4.6 percent lower than a
year ago.

"Although the availability of vehicles in the wholesale
market has improved recently, so too has the level of retail demand," Webb
said.

"As such, we would view the recent moderation in wholesale
pricing as more a natural realignment with respect to new-vehicle prices than a
supply-driven issue," he continued. "Retail used unit sales increased nicely in
the first quarter of 2013 as new-vehicle sales begot used-vehicle transactions
and higher off-lease and off-rental volumes led to the subsequent retail sale
of those units."

All six vehicle segments included in Manheim's index report
declined year-over-year. Three segments decreased more than March's overall
drop, including compact cars (down 5.3 percent), midsize cars (down 6.5
percent) and luxury cars (down 6.0 percent).

Two other segments moved almost as much as the overall
reading, as SUVs and CUVs slipped 4.3 percent and van dipped 3.9 percent in
March. Meanwhile, trucks edged just 0.3 percent lower year-over-year last
month.

Rental Risk Prices Reflect Richer Mix

Manheim determined a straight average of auction prices for
rental risk units reached a new high in March. But Webb said this development
mostly reflected a shift in the composition of vehicles sold.

For example in the first quarter of this year, Webb pointed
out current and previous model-year vehicles accounted for 61 percent of all of
rental risk units sold, and older units accounted for the remaining 39 percent.
In the first quarter of last year, he noted current and previous model-year
vehicles accounted for only half of all rental risk units sold.

"The model mix of vehicles sold at auction has also moved
upscale relative to last year," Webb said. "The average mileage on rental risk
units sold during the quarter was about 5 percent lower than last year."

When asked about automaker incentive activity in connection
with this wholesale segment, Webb reiterated that "incentive activity is always
negative toward pricing of those off-rental units." The analyst wondered about
the trend in light of General Motors ramping up incentives during March.

"The numbers for GM were strongly affected by the activity
on their full-size pickups, for natural reasons, which is not a big issue in
terms of the rental fleet," Webb said about the OEM's move to turn excess
pickup truck inventory.

Webb then discussed a GM model that might be more prominent
in the off-rental lanes: the Chevrolet Malibu.

"I actually believe (GM has) shown a strong amount of price discipline
given the fact that sales rates are starting to level off. A prime example is
the Malibu," Webb said. "As the vehicle demand has weakened a little, they've
decided to reduce production whereas I think the GM of the past would have put
incentive money on it."

Alternative-Fuel Vehicles in the Lanes

When asked during the call, Webb said he hasn't seen enough
volume to say anything about how pure electric vehicles are performing in the
wholesale market. However, he offered an update on what hybrid models are doing
at auction.

"I would say that the hybrids have actually done sort of as
you would expect in terms of residuals," Webb said. "To a certain extent, those
vehicles have been pushed onto the market. As you know in the very early stages
of their offering, those vehicles were basically selling at sticker and they
were in short supply. Any time you have a new-vehicle market that's selling at
sticker and a short supply on the new-vehicle side, it's going to command a
good residual value.

"I would also say that now that we've gotten some older
hybrids back in the market, they do seem to retain their value even at the
higher age points whereas many people were worried about battery life and those
things. It hasn't been as problematical as some people expected," he concluded.

Nick Zulovich can be reached at nzulovich@subprimenews.com. Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.