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Jonathan Smoke's Remarketing Strategy - May 2020 - Wholesale Prices See Historic Fall in April


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Release date: 5/14/2020

Wholesale Prices See Historic Fall in April
by Jonathan Smoke

Cox Automotive

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) decreased 11.41% month-over-month in April. This brought the Manheim Used Vehicle Value Index to 125.8, a 9.2% decrease from a year ago, and the lowest level in three years.
 
Declines in Manheim Market Report (MMR) prices accelerated over the last two weeks of March and the first two weeks of April but then started to decelerate over the final two weeks of April. April saw a decline of about 10% in the Three-Year-Old Index. Given the unprecedented downturn in sales and market disruption that the industry experienced because of the COVID-19 pandemic, the declines initially observed in MMR values at the vehicle level and at all aggregation levels did not fully reflect the declines occurring in the relatively limited number of sales transactions taking place. However, by the end of April, the MMR retention gap had disappeared. MMR retention is the average difference in price relative to current MMR, which was as low as 89.5% in early April but ended the month at 100%.
 
On a year-over-year basis, all major market segments saw seasonally adjusted price declines in April. Luxury cars and SUVs/CUVs outperformed the overall market, while most other major segments underperformed the overall market.
 
Negative retail results for vehicle sales year-over-year. According to Cox Automotive estimates, total used vehicle sales volume was down 34.3% year-over-year in April. We estimate the April used SAAR to be 27.0 million, down from 39.3 million last April and down from March’s 32.0 million rate. The April used retail SAAR estimate is 14.4 million, down from 21.4 million last year and down month-over-month from March’s 17.3 million rate.
 
Wholesale prices are stabilizing as the excess supply of used vehicles comes down. Review a rolling seven-day estimate the 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 April at 53 days. We estimate that wholesale supply peaked at 149 days on April 9, when normal supply is 23. It was down to 65 days by month end.
 
April total new vehicle sales were down 47% year-over-year, with one more selling day compared to April 2019. The April SAAR came in at 8.6 million, a decrease from last year’s 16.5 million and down from March’s 11.4 million rate. This is the lowest monthly SAAR going back to 1976. Cars continue to see declines as their share in April fell to 23%, an all-time monthly low.
 
Combined rental, commercial, and government purchases of new vehicles were down 70% year-over-year in April. Retail sales of new vehicles were down 41% year-over-year in April, leading to a retail SAAR of 7.7 million, down from 13.5 million last April and down from March’s 8.7 million rate. Fleet sales are down 24.9% in 2020 through April, and retail sales are down 20.3%, as the overall new vehicle market is down 21.2% so far this year.
 
New vehicle inventories came in under 3.3 million units.
 
Rental risk pricing decreased. The average price for rental risk units sold at auction in April was down 11% year-over-year. Rental risk prices were down 12.6% compared to March. Average mileage for rental risk units in April (at 51,200 miles) was up 14% compared to a year ago and up 12% month-over-month.  
 
Coronavirus uncertainty amid declining conditions. The first estimate of the first quarter real GDP decline came in at 4.8%, which was worse than the consensus estimates of 4% and the biggest quarterly decline since the fourth quarter of 2008. Consumer spending fell 7.6%. Consumer Confidence from the Conference Board declined 27% in April, adding to the 10% decline recorded in March. The monthly decline and the two-month decline were both records with data back to 1967. Plans to purchase a vehicle in the next six months declined 34% in April, which was also a record. Stay-at-home orders across the country caused businesses to close temporarily, and that has led to a massive increase in the temporarily unemployed. Initial claims for jobless benefits were 3.8 million for the week ending April 24. A total of 30.2 million claims have been filed in six weeks.