May 2020 Kontos Kommentary: Current Used Vehicle Market Conditions

Summary

When looked at on an aggregated basis, wholesale used vehicle prices in May appeared to more than make up for losses in March and April resulting from the COVID-19 pandemic. However, with the remarketing industry having undergone significant changes in sales volumes and composition, aggregated numbers often mask lingering weakness in wholesale prices relative to pre-COVID levels that are revealed when disaggregating the data by sale type, model year, model class, etc.

Auctions are selling proportionately more younger, lower-mileage, higher-dollar units, with more sales from commercial consignors than dealer consignors, including more factory and captive finance sales. This “richer mix” of vehicles is biasing average prices upward. And sales volumes in May were 75% of year-ago and pre-COVID/February levels, thus representing a more restricted picture of total market conditions.

Nevertheless, wholesale prices in May did experience a significant rebound and represented a healthy balance between offered supply and dealer demand.

Details

According to KAR Global Analytical Services’ monthly analysis of wholesale used vehicle prices by vehicle model class, wholesale prices in May averaged $11,743 — up 22.1% compared to April and up 0.7% relative to May 2019, as seen in the table below. We have also added a column showing February 2020 (“Pre-COVID”) prices:

As the table shows, May average prices in total were up by 3.6% versus pre-COVID levels. However, it must noted that wholesale vehicle sales in May were considerably different in scale and composition than in February. More, specifically, May sales were: 1) roughly 75% of Pre-COVID and Prior Year levels; and 2) biased towards commercial rather than dealer sales, i.e., younger, lower-mileage and higher-dollar units.

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

Average wholesale prices for used vehicles remarketed by manufacturers were up 12.8% month-over-month and up 4.8% year-over-year. Prices for fleet/lease consignors were up 27.3% sequentially but down 0.1% annually. Average prices for dealer consignors were up 15.3% versus April but down 3.6% relative to May 2019.

May CPO sales were up 86.9% from the prior month and down 5.7% year-over-year, according to figures from Autodata. Year-to-date, CPO sales were down 15.8% through May.

Source: 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. KAR Global Analytical Services segregates these transactions to study trends by vehicle model class, sale type, model year, etc.

Disclaimer: 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.

Forward-Looking Statements: The statements contained in this report and statements that the company may make orally in connection with this report that are not historical facts (including, but not limited to, expectations, estimates, assumptions and projections regarding the industry and business) may be forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “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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