Used vehicle demand ‘robust’ in third quarter, prices ‘strong’ in September

In a third-quarter earnings preview, analysts Bret Jordan, David Kelley and Mark Jordan, all of Jefferies, said certified pre-owned vehicle sales rose 0.5% to 679,000 units in the quarter, from the same period in 2016. Used vehicle prices fell in the mid-single-digits in the quarter.

Retail sales of used vehicles were expected be “strong” in the quarter, “driven by continued robust consumer demand and an elevated supply of higher-quality, late-model offerings, partially offset by expected mid-single-digit pricing declines,” according to the analysts.

In September, wholesale prices of used vehicles up to eight years old declined 1.1%, according to J.D. Power Used Car and Light Truck Guidelines.

“Used vehicle prices performed exceptionally well due in large part to significant decreases in supply and increase in demand stemming from disruptions of Hurricane Harvey and Irma.”

Over the past five years, the price has fallen by an average of 3.1% in the month. The strong September performance led J.D. Power Valuation Services’ Seasonally Adjusted Used Vehicle Price Index to rise 1.6% to 113.4. This was the second consecutive month the index increased. Through the first nine months of 2017, the index has fallen 6.6%, from the same period in 2016.

Auction trends were impacted by the hurricanes, and volume for vehicles up to three years old fell 9.3% to 213,950 units in September, from the same month in 2016. Through the first nine months of 2017, auction volumes have risen 5% to 2.161 million, according to J.D. Power.

In October, wholesale prices of vehicles up to eight years old are expected to fall 1.6%. The prices in October 2016 fell 3.7%. In 2017, the prices are projected to fall 5.3%. In 2016, the prices declined 4.1%.

New vehicle sales rose 6% in September, from the same month in 2016 “as consumers in hurricane-hit parts of the country replaced flood-damaged cars,” according to J.D. Power. Also, “higher fleet volume, a five-weekend sales month and more effective incentives contributed to a jump in sales.”

Through the first nine months of 2017, sales have fallen 1.9% to 12.8 million units, from the same period last year. The seasonally adjusted annual rate of sales rose to 18.47 million units, from 17.65 million in the same month in 2016. It was the highest sales rate since 20.61 million units in July 2005 and the sixth highest on record. Automakers increased incentive spending for the 30th consecutive month in September. The spending rose 5.4% to $3,889, from the same month in 2016, according to Autodata.

Vehicle supply was flat at 64 days in September, compared to the same month in 2016, according to WardsAuto.

In October, new vehicle sales are expected to fall 2% to 1.34 million units, resulting in a seasonally adjusted annual sales rate of 17.9 million, according to Kelley Blue Book.

“Although the headline shows a small decline in sales, October looks relatively strong for the industry, as evidenced by the nearly 18 million SAAR,” said Tim Fleming, analyst for Kelley Blue Book. “Some of the strength can be attributed to replacement demand that continues in Texas and Florida, but perhaps more importantly, higher incentive spend is playing a role. Even with production cuts this year, incentives are on the rise and have reached 11% of average transaction prices. This is an indicator that new-vehicle demand is still contracting, and production cuts could be on the horizon to prevent oversupplies.”