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Release date: 6/10/2020
Strong Rebound in Wholesale Prices After Historic Fall in April
by Jonathan Smoke
Cox Automotive
Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 8.96% month-over-month in May. This brought the Manheim Used Vehicle Value Index to 137.0, a 1.9% decrease from a year ago.
Manheim Market Report (MMR) prices improved over the last four weeks resulting in a 5.1% cumulative increase on the Three-Year-Old Index. MMR Retention, which is the average difference in price relative to current MMR, was greater than 100% in all but three days in May and averaged 101.7% for the month. The MMR Retention trend reflected that vehicles were selling above current MMR values and was a clear reversal of what happened in late March and April.
On a year-over-year basis, all major market segments saw seasonally adjusted price declines in May. Luxury cars outperformed the overall market, while most other major segments underperformed the overall market.
Recovering retail results for vehicle sales. According to Cox Automotive estimates, total used vehicle sales volume was down 22.4% year-over-year in May. We estimate the May used SAAR to be 32.0 million, down from 39.2 million last May but up from April’s 27 million rate. The May used retail SAAR estimate is 16.7 million, down from 21.0 million last year but up month-over-month from April’s 14.4 million rate.
Wholesale prices are stabilizing as the excess supply of used vehicles comes down. Using a rolling seven-day estimate of used retail days’ supply based on vAuto data, we see that used retail supply peaked at 115 days on April 8. Normal used retail supply is about 44 days’ supply. It ended May at 33 days. We estimate that wholesale supply peaked at 149 days on April 9, when normal supply is 23. It was down to 39 days by month end.
May total new vehicle sales were down 30% year-over-year, with the same number of selling days compared to May 2019. The May SAAR came in at 12.2 million, a decrease from last year’s 17.4 million but up from April’s 8.6 million rate.
Combined rental, commercial, and government purchases of new vehicles were down 83% year-over-year in May. New vehicle sales into the rental channel fell 91% year-over-year in May. Retail sales of new vehicles were down 16% year-over-year in May, leading to a retail SAAR of 11.6 million, down from 14.0 million last May but up from April’s 7.9 million rate. Fleet sales are down 38% in 2020 through May, and retail sales are down 19%, as the overall new vehicle market is down 23% so far this year.
New vehicle inventories came in around 2.6 million units.
Rental risk pricing improves. The average price for rental risk units sold at auction in May was down 5.3% year-over-year. Rental risk prices were up 6.4% compared to April. Average mileage for rental risk units in May (at 46,300 miles) was up 2% compared to a year ago but down 10% month-over-month.
Coronavirus uncertainty amid declining conditions. The first revision of the estimated first-quarter real GDP contraction came in at 5%, which was lower than the first estimate of a 4.8% decline. The principal driver of the downward revision was a substantial downward revision in the investment in business inventories. Consumer spending in total declined 13.6% in April with big declines in durable goods, non-durable goods, and services; but spending on durable goods like vehicles declined the most. The spending decline in April was the largest in the history of the data back to 1959. The new home sales SAAR increased 0.6% in April, which far outperformed consensus expectations of a 23% decline. The pace of new home sales is now down 6.2% from a year ago. Unlike new home sales, the pending home sales index for April declined 21.8%, which was the worst monthly decline in the data series, which goes back to 2001. The decline in pending sales suggests that we may see weakness again in existing home sales in May even with new home sales’ picking up and mortgage rates’ falling to all-time lows. However, mortgage purchase applications are now higher year-over-year. As lockdowns eased and pandemic fears lessened in May, both housing and the auto markets seem to have bottomed in April.