Used vehicle values in the U.S. started to recover in the second quarter and into June, but the growth has started to slow as COVID-19 cases rise.
Used vehicle values rose 8.9% in June, from May, and the Manheim Used Vehicle Value Index increased 6% to a record high of 149.3 in June, from the same month in 2019, said Zo Rahim, manager of economics and industry insights for Cox Automotive. The rise came after a historic decline of 11.4% in April and a recovery of 9% in May, said Jonathan Smoke, chief economist for Cox Automotive.
The normal pattern in used vehicle values is that they rise in the spring during sales tax refund season and decline over the summer. However, this year, the values started to rise but quickly declined in the wake of the COVID-19 pandemic.
“We have since seen a full recovery, and now new record highs in prices,” Smoke said. “No recent year has been close to the current level of prices compared to the beginning of the year.”
Used vehicle values up to three years old increased 1.9% in June, from the same month in 2019, he said.
Smoke noted that forecasts for the used vehicle market have changed throughout the pandemic. “By no means is the crystal ball clear, especially for the next three to six months,” he said. “We’ve enjoyed a dramatic and rapid recovery in the auto market, but the latest data suggests that we’ve lost momentum. And it may be very difficult to see new vehicle sales grow much more without production returning to normal and demand stabilizing relative to very high unemployment.”
New vehicle sales are expected to be 12.9 million for 2020, while used vehicle sales reach 34.1 million, Smoke said. But this depends on the length of the recession and the economic recovery.
The new vehicle market has been recovering steadily since April, with sales rising in June, from May, but were down 27% from the same month in 2019, Rahim said. The seasonally adjusted annual rate of new vehicle sales rose to 13 million in June, from 12.3 million in May, but down from 17.2 million in 2019. In the first half of the year, new vehicle sales have fallen 23%, from the same period in 2019.
The recovery in new vehicle sales reached a ceiling at the end of May, and sales have been flat since then, Smoke explained. The used vehicle recovery started to change in mid-June, and this coincided with the rise in COVID cases along with falling consumer sentiment, he said.
Morning Consult’s Index of Consumer Sentiment has fallen 23.4% since Feb. 29. The recent rise in COVID cases has contributed to a decline in consumer sentiment, leading the index to be lower at the end of June than it was at the start of the month, Smoke said. As of early July, the index was at its lowest point since May 28.
The supply of vehicles has become an issue, and the used vehicle inventory is about one-third of what it normally is, Smoke said. “If you’re a consumer looking for a particular vehicle, you may be having a heck of a time finding that vehicle,” he said. “We’re hearing as more sales move to online transactions that you can actually see a vehicle, and while you’re on the site, discover that it’s already been sold.”
Consumers are concerned about not only the pandemic, but also their finances as stimulus checks have been distributed and extended unemployment benefits are soon set to expire, Smoke said.
Over the summer and into the fall, he expects the used vehicle to be impacted by the new vehicle market as new vehicle models are released and previous year models are being discounted. This might drive demand from the used vehicle market to the new vehicle market and put pressure on used vehicle values.
At the same time, Smoke expects more consumers will face credit performance issues as they might be unemployed and have a lower amount of unemployment pay unless another round of stimulus money is approved. He expects the used vehicle supply will increase because of repossessions that might have been delayed from this spring at the start of the pandemic along with repossessions related to the credit performance issues.