Black Book Market Insights – 8/9/2022

Wholesale Prices, Week Ending August 6th

The market experienced a significant decline last week, reminiscent of the declines experienced during Q3 of last year and the declines felt at the start of the pandemic. Auction lane conversion rates showed some slight improvement last week, as sellers have adjusted their floors to reflect the weakening consumer demand.

                                           This Week      Last Week       2017-2019 Average (Same Week)

Car segments                        -0.92%           -0.91%              -0.31%

Truck & SUV segments       -0.88%           -0.84%              -0.20%

Market                                 -0.89%           -0.86%               -0.25%

Car Segments

  • On a volume-weighted basis, the overall Car segment decreased -0.92%. For reference, the previous week, cars decreased by -0.91%.
  • All nine Car segments decreased last week.
  • The luxury segments reported the largest declines again last week. Near Luxury and Prestige Luxury reported the largest adjustments at -1.37% and -1.34%, respectively.
  • Compact Cars broke the 1% mark with a decline of -1.06%.
  • Sub-Compact Cars have been weathering the softening market better than many other segments, but last week, the declines accelerated to -0.48%, after the prior week’s -0.21% drop.

Truck / SUV Segments

  • The volume-weighted, overall Truck segment decreased -0.88%, compared to the prior week’s decrease of -0.84%.
  • All thirteen truck segments reported decreases.
  • The Full-Size Luxury Crossover/SUV segment had another large decline last week, down an additional -1.72% after the prior week’s decrease of -1.76%.
  • The other luxury crossover segments, Sub-Compact (-1.90%), Compact (-1.27%), and Mid-Size (-1.34%) also had large declines last week that exceeded 1%.

Weekly Wholesale Index

Calendar year 2020 and 2021 ended with used wholesale prices at elevated levels. With economic patterns (including the automotive market) driven by the pandemic, normal seasonal patterns (e.g., 2019 calendar year) in the wholesale market were not observed for most of the last 2 years. We saw a similar picture in 2009, at the end of the Great Recession. Calendar year 2021 did not have typical seasonality patterns as the market had rapid increases in wholesale values for the majority of the year. The Wholesale Weekly Price Index reached the highest point of the year at the end of December 2021, reporting over 1.51 points. Throughout 2022, the Index has remained stable compared to the beginning of the year.

The graph below looks at trends in wholesale prices of 2-6-year-old vehicles, indexed to the first week of the year. The index is computed keeping the average age of the mix constant to identify market movements.

Retail (Used and New) Insights

  • The Senate moved forward with a bill to extend the federal EV tax credit. Some highlights of the bill include removing the 200,000-unit limit on sold EVs, this would allow General Motors and Tesla to once again be eligible, and contains a credit for used EVs.
  • The 2023 Volkswagen ID.4 will be more affordable, now offering a lower range for a starting price under $40,000, before any federal incentives.
  • Lucid has updated their expected production volume for their all-electric luxury sedan, the Lucid Air, from 20,000 units expected for 2022 down to as few as 6,000.
  • BMW announced their intentions to explore the use of hydrogen fuel cell variants of their vehicles as a complement to their electric vehicles. The first variant, called iX5 Hydrogen, is set to start a limited production run later this year.

Used Retail Prices

Used Retail Prices are more accessible than in years past, due to the proliferation of ‘no-haggle pricing’ for used-vehicle retailing. Transparent pricing upfront makes the car buying process more enjoyable for customers and allows Black Book to accurately measure retail market trends.At the on-set of the pandemic, in CY2020, used retail prices increased slightly, following typical seasonal patterns, and then began dropping in April, finally hitting a low point in the late spring months. By late summer of CY2020, Used Retail Prices increased as supply of new vehicle inventory started to become scarce, but retail demand slowed down at the end of CY2020, resulting in declining retail asking prices for the last several weeks of the year. When CY2021 kicked off, demand rebounded while retail prices lagged slightly behind wholesale prices; March of 2021 started the dramatic increases in Used Retail Prices, fueled by stimulus payments, tax season, and shortages of new inventory. During the third quarter, retail prices continued to rise at a slower rate but soon picked up the pace once again to start the fourth quarter. In Q4, prices on retail listings steadily increased week after week. As CY2021 came to an end, the retail listing price index closed 36% above where the year began.

So far in 2022, the Retail Listings Price Index has remained relatively unchanged. The Index sits around 0.99, indicating a very slight decrease in retail pricing compared to the start of the year. Typically, there is a lag between changes in wholesale prices and retail prices.This analysis is based on approximately two million vehicles listed for sale on U.S. dealer lots. The graph below looks at 2-6-year-old vehicles. The Index is computed keeping the average age of the mix constant to identify market movements.

Inventory

Used Retail

Used Retail Listing Volume has increased slightly as demand for used vehicles weakened.

The Used Retail Days-to-Turn Estimate has also increased and now sits at 44 days.

Wholesale

In the wholesale market last week, there were more model year 2022 vehicles trickling in through the lanes as well as newer used vehicles offered (model year 2019 to model year 2021) in average condition. Large independent dealers were not as active but the smaller franchise dealers were still very busy. Sales rates were slightly softer than weeks prior, and inventory was very low. Sellers floors are continuing to soften with the market continuing to show signs of weakness. Fuel prices for both gas and diesel are following the downward trend which may help increase consumer demand but still both the Car and Truck segments continued to decrease last week. In the Car segments, Near Luxury led the pack in declines with Prestige Luxury, Luxury, and Compact Cars not too far behind. In the Truck Segments, Sub-Compact Luxury decreased the most, followed by Full-Size Luxury, Mid-Size Luxury, and Compact Luxury Crossovers.

The Estimated Average Weekly Sales Rate remains dropped slightly last week, to 65%.

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