October 23, 2008
Wholesale Used-Vehicle Prices Flat, but SUV and Pickup Prices on the Rise
Although wholesale used-vehicle
prices were essentially flat in September compared to August, this performance
almost seems robust when you consider the dramatic volatility in financial
markets, the credit gridlock, and concerns about a recession. That is according
to Tom Kontos in his “Kontos Kommentary” on the current used-vehicle market
conditions and outlook.
Despite the used-vehicle market’s
recession-resistance, however, the market is feeling the impact of double-digit
year-over-year declines in retail sales resulting from a lack of traffic and
diminished credit availability, Kontos writes. Dealers, who might normally
stock up on rental and fleet units that come available this time of year due to
fall model-year-changeover defleeting, are unwilling or unable to add to their
floorplans with credit and sales prospects so constrained.
There is some good news, Kontos
reports. Average prices for SUVs and pickups rose again, supporting the belief
that prices in these segments hit bottom in May and June when gas hit a $4-plus
peak. However, compact car prices are no longer benefiting as much from strong
dealer interest in purchasing more fuel-efficient vehicles.
Demand for nearly new, usually pricier units
also appears to have softened, as evidenced by lower conversion rates (units
sold as a percent of units offered) for these vehicles. But the nearly new
units that sold well in September fetched higher prices due in part to lack of
overall supply of off-rental units.
Regarding credit, like the flow of
credit today, travel came to a halt immediately after Sept. 11, 2001, as
security concerns outweighed mobility needs.
Eventually, travel resumed to pre-Sept. 11 levels, though with greatly
decreased convenience due to heightened security screening.
Credit will eventually flow freely again, Kontos
wrote, allowing commerce to resume at levels that generate economic growth and
prosperity.
But, like travel today,
things will not be the same as they were before the crisis because obtaining
credit will be more difficult.
In the
end, new “security” measures will make lenders, borrowers and investors more
disciplined just as travelers have learned to be.