Used vehicle prices hit new record, sales soften

Wholesale used vehicle prices increased to a new high in September as sales continued to moderate, economists said. The prices are expected to remain high and may rise amid strong vehicle demand leading into tax refund season in spring 2022.

In a recent conference call, Kayla Reynolds, economic and industry insights manager for Cox Automotive, said wholesale used vehicle prices on a mix, mileage and seasonally adjusted basis increased by 5.3% in September, from August. As a result, the Manheim Used Vehicle Value Index rose to a record high of 204.8, a 27.1% increase from September 2020.

“The change in September aligns with us now seeing the impact of inventory and price concerns within the market,” Reynolds said. “New vehicle prices peaked in December and peaked again last month for an all-time high.” She added that the recent price increases in the used vehicle market can be attributed to a lack of inventory to support demand.

Jonathan Smoke, chief economist of Cox Automotive, said COVID-19 and storms impacted economic activity in September, but excluding the travel industry, consumer spending is up compared to 2019 levels. Consumer spending on vehicles also is up from 2019 levels with pricing playing a role in the rise.

“That consistency in spending on vehicles is very much a product of inflation as activity measured in units definitely slowed as we transitioned from the spring and into the summer,” Smoke said. He noted that prices typically increase closer to 2%, not the 27% experienced in September.

“When prices go up, people tend to slow down purchases of goods,” he added.

In June, the new vehicle market was impacted by supply issues, while used vehicle sales were affected by rising prices, he explained. In August, new vehicle sales fell as the supply issue worsened, but used vehicle sales improved as the prices flattened. In September, both vehicle markets moderated, but the used vehicle market is performing better, Smoke said.

In September, the seasonally adjusted annual rate of sales for new retail vehicles fell to 10.7 million, from 11.4 million in August. Meanwhile, the seasonally adjusted annual rate of used retail sales was flat 19.5 million.

Smoke noted that worsening new vehicle production issues led Cox Automotive to downgrade its annual sales forecast for new vehicles. He expects that new vehicle sales have hit a low and production and supply conditions “to slowly turn the corner late this year.” The conditions should gradually improve in 2022, he added.

New vehicle sales are projected to be between 15 million and 15.5 million in 2021 as sales moderated through the second half of the year. Used retail sales are projected to be 24.1 million in 2021.

In mid-September, new vehicle inventory was down 75%, compared to 2019 levels. Meanwhile, used vehicle inventory was down 21%. Compared to 2020 levels, used inventory was up slightly.

“Simply put, the contrast could not be more different,” Smoke said. “Consumers see very limited choices on new vehicle lots but much better options in used.”

Even so, commercial auction inventory is less than half of pre-COVID levels. Kevin Chartier, vice president of Manheim Consulting, said about 15% of the normal volumes of vehicles coming off lease are going to auction. Meanwhile, vehicle loan default rates are at record lows, and repossession volumes are about down about one-third from levels before the pandemic. Also, the lack of new vehicles is impacting the rental car market, and rental vehicles going to auction are at about 40% of 2019 levels.

“Given the current market trends, we expect supply constraints to be persistent well into next year and potentially beyond,” said Chartier, adding that the strength in used-vehicle pricing is expected to continue through the remainder of 2021.

For one- to three-year-old vehicles, auction values reached a new peak in September and were up 26 percentage points compared to 2019, Smoke said. The average price of rental vehicles sold at auction increased 37% in September, from the same month in 2020, Reynolds said. The price also was up 12% from August.

Also on the call, Grace Huang, president of Manheim, said the company is investing nearly $100 million in technology, processes and equipment to prepare for electric vehicles (EV). Huang said the company partnered with Spiers New Technologies to develop a tool to show battery health of electric vehicles and noted that 40% of their cost can be attributed to the batteries.

“We’re producing an easy-to-understand scorecard that has vital information, especially for the EV buyers,” Huang said. “In our own tests, we have found that EV batteries…with a battery vital scorecard get roughly five times more views and bids than those that don’t and sell for values that are 1% to 4.5% higher. So the dealers, the buyers are looking very closely at the battery vital scorecard.”