Used vehicle prices increase at record levels in aftermath of hurricanes

The price of used vehicles continues to rise at record levels, and increased 6.3% in September, from the same month in 2016. Since August, the price of used vehicles has risen 2.77%, said Zo Rahim, analyst for Cox Automotive.

“Currently wholesale pricing is above trend,” he said.

Rahim and Jonathan Smoke, also an analyst for Cox Automotive, discussed the Manheim Used Vehicle Value Index in a quarterly call on Oct. 6. The index was 134.9 in September.

“Think of the index as the most reliable indicator of what dealers are paying in the used car market,” Smoke said.

New vehicle prices have risen 1%, from the same time in 2016, Smoke said. Expect pressure on new vehicle prices until supply declines by 15%.

“New vehicle prices typically peak in December. The year-over-year gain in prices has moderated substantially. … New vehicle price performance is a reflection of too much supply.”

Smoke said other indexes on used vehicles have shown the value the vehicles retain, but the Manheim Used Vehicle Value Index has shown used vehicle price trends, not retention levels. However, the value that used vehicles, between one and three years old, have retained is flat, from last year. Retention values, which are impacted by a vehicle’s list price, look to be leveling off at between 55% and 60% of the price.

“Pickups, SUVs and vans have outperformed the market,” Smoke said.

Between January and August, mid-sized vehicle prices fell but rose 2.3% in September. The month was impacted by hurricane demand, he said.

“Houston favors pickups,” but residents are purchasing vehicles they can afford, which is why demand has risen across all segments. Smoke and Rahim estimated nearly 600,000 vehicles were “severely damaged or scrapped” as a result of Hurricanes Harvey and Irma. Between September and November, “400,000 vehicles should be replaced.” Nearly 30% to 40% of the replacement vehicles will be new vehicles, and the remainder will be used, boosting vehicle sales through November.

“Not all vehicles are capable of being replaced immediately,” Smoke said.

The replacement demand in Texas is 400,000 vehicles, and the demand in Florida is about 200,000 vehicles.

“Florida is not responding as quickly. The recovery there is just getting started.”

Smoke and Rahim based their damage estimates from the hurricanes on Hurricanes Katrina and Sandy, which impacted New Orleans and New York, respectively. The supply of wholesale vehicles will be tighter for between two and three months, increasing wholesale used vehicle values over the period. Prices have been impacted “everywhere because the whole market is responding,” said Smoke, who has heard of dealers moving vehicles from Ohio to Texas.

Auction volumes fell in September, from the same month in 2016. After the hurricanes, dealers see no reason to take vehicles to auction as retail demand has risen, Smoke said. Mid-sized and compact cars are the most in supply and least in demand and will see “weaker price performance,” Smoke said. Pickup prices are expected to rise.

Most vehicle prices decline between 1% and 2% monthly, he said. Vehicles of model years 2014 and 2015 are depreciating the least. The chart for vehicle depreciation looks like a waterfall, with vehicles depreciating the most in the first year. However, in September, the value of the top selling vehicles in the Manheim Market Report rose. The following are the top five.
• 2017 Kia Sedona 4D Wagon LX, $19,300
• 2015 Nissan Altima 4C 4D Sedan S, $11,050
• 2015 Mercedes-Benz Class 4D Sedan C300 4Matic, $23,500
• 2016 Ford Fusion FWD 4D Sedan SE, $13,250
• 2014 Nissan Altima 4C 4D Sedan S, $9,825

The average auction price for vehicles coming from the rental sector rose 4% in September, from the same month in 2016, Rahim said. The price has risen 2% from August. The average mileage for these vehicles rose 6% to 42,255, from September 2016.

“Rental units have a minimal impact on used vehicle price trends,” Smoke said.

The price difference between the Manheim index with rental units included and without is about 1.5%. Smoke believes the industry is “past the point of pressure” from vehicles coming off lease. Between 2015 and 2017, the number of vehicles coming off lease rose by more than 1 million vehicles. Volumes have since been declining.