February 2019 Kontos Kommentary: Current Used Vehicle Market Conditions

Summary

Average wholesale prices were relatively flat in February, as opposing forces largely canceled each other out.  To be more specific, overall car price declines were more than offset by truck price gains; and off-lease price strength was largely offset by softer prices elsewhere.  Within the off-lease segment, the “take-rate” of midsize cars purchased upstream may be higher than that of midsize SUV/Crossovers, which is leaving fewer late-model midsize cars in the lanes and an abundance of midsize SUV/Crossovers.  Further explanation is provided below. 

Details

According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class1, wholesale used vehicle prices in February averaged $10,775 – up 0.1% compared to January and up 0.6% relative to February 2018.  On average, car segment prices were down both month-over-month and year-over-year, while the opposite was true for trucks.

However, when holding constant for sale type, model-year age, mileage, and model class segment — using criteria that characterize off-lease units — prices were up significantly on a year-over-year basis for midsize cars but down significantly for midsize SUV/CUVs, as seen in the following table:

A possible explanation for the strength of off-lease midsize car prices is that more off-lease cars are being bought “upstream,” that is, in online-only sales from dealer lots and marshalling yards.  So, auctions may be seeing a relative scarcity of late-model midsize cars.  On the other hand, there may be an abundance of midsize trucks at auction as more of these vehicles are making it “downstream” to physical auction lots.

Average wholesale prices for used vehicles remarketed by manufacturers were up 1.7% month-over-month but down 1.8% year-over-year.  Prices for fleet/lease consignors were down 0.4% sequentially but up 4.6% annually.  Average prices for dealer consignors were down 0.4% versus January and down 0.3% relative to February 2018.

Based on NADA data, retail used vehicle sales by franchised dealers and independent dealers were up 4.0% year-over-year in February.

1

The analysis is based on over seven million annual sales transactions from over 250 of the largest U.S. wholesale auto auctions, including those of ADESA as well as other auction companies. ADESA Analytical Services segregates these transactions to study trends by vehicle model class, sale type, model year, etc.

The views and analysis provided herein relate to the vehicle remarketing industry as a whole and may not relate directly to KAR Auction Services, Inc. The views and analysis are not the views of KAR Auction Services, its management or its subsidiaries; and their accuracy is not warranted. The statements contained in this report and statements that the company may make orally in connection with this report that are not historical facts are forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “bode”, “promises”, “likely to” and similar expressions identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the company’s Securities and Exchange Commission filings. The company does not undertake any obligation to update any forward-looking statements.

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