MANHEIM – A mid-June measure of the Manheim Used-Vehicle Value Index is good news for those hoping to see an increase in wholesale used-vehicle values. In fact, the latest measure shows values have never been higher, an indication there is rapidly growing demand for used-vehicle inventory. The team notes wholesale values of used-vehicles at auction are now higher than they were in January.
We continue to see positive recovery trends in the auto market in June.
Wholesale Prices Continue Strong Performance First Half of June
Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) increased 6.6% in the first 15 days of June compared to the month of May. This brought the mid-month Manheim Used Vehicle Value Index to 146.1, a 4.0% increase from June 2019. If the mid-month value of the Manheim Index holds for the full month, the Index will hit an all-time high.
Manheim Market Report (MMR) prices improved again over the last two weeks, resulting in a 3.7% cumulative increase in the first two weeks of June on the Three-Year-Old Index. Over the first 15 days of June, MMR Retention, which is the average difference in price relative to current MMR, was above 100% every day and averaged 102.8%. The MMR Retention trend reflected that vehicles were selling above current MMR values. The weekly price performance in May and June has been more reminiscent of a typical March and April.
On a year-over-year basis, most major market segments saw seasonally adjusted price increases in the first 15 days of June. Luxury cars outperformed the overall market, while most other major segments underperformed the overall market.
Recovering retail sales are reducing vehicle supply. As used retail sales continue to recover, both retail and wholesale supply are coming down. Using a rolling seven-day estimate 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. The most recent seven-day estimate of used retail supply is at 31 days. We estimate that wholesale supply peaked at 149 days on April 9, when normal supply is 23. It was down to 30 days for the most recent seven-day period.
Rental risk pricing improves. The average price for rental risk units sold at auction in the first 15 days of June was up 0.5% year-over-year. Rental risk prices were up 6% compared to May. Average mileage for rental risk units in the first half of June (at 40,500 miles) was down 13% compared to a year ago and down 12% month-over-month.
Coronavirus uncertainty amid economic contraction. Auto loan delinquency rates fell in May, but much of the improvement may be a result of loan accommodations, which were reported by Equifax to be 7.3% of auto loans by the end of May. In May, 1.45% of auto loans were severely delinquent, while 5.19% of subprime loans were severely delinquent. Both rates were higher than last May’s rates. The subprime delinquency rate in May was the highest for the month of May going back to 2006. The initial May reading on Consumer Sentiment from the University of Michigan increased to 78.9 from 72.3 in May. The increase in sentiment was driven by improving views of future expectations as well as current conditions. Consumers also saw improving buying conditions for vehicles and homes. The peak in daily new COVID-19 cases in the U.S. was seven weeks ago, but the new case trend has at best flattened out recently as several areas of the country are seeing an uptick in new cases. Some cities and states are contemplating reimposing lockdown orders. Despite these concerns, we continue to see positive recovery trends in the auto market in June.
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