Wholesale Prices, Week Ending April 3rd

It was another record-breaking week for wholesale prices to finish out the month of March and kick-off the start of April. Not only was the overall market adjustment a record, but it was also record setting to have all reporting segment categories exceeding the 1% mark in a single week, with four experiencing gains greater than 2.0%.

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

Car segments                     +1.99%     +1.58%             +0.21%

Truck & SUV segments    +1.73%     +1.44%             -0.06%

Market                              +1.82%    +1.49%            +0.06%

Another major development that we are seeing in the wholesale market is a substantial increase in prices that dealers are willing to pay for higher mileage units, especially on newer (0-to-2-year-old) used vehicles. Because of this development, Black Book started updating our mileage sensitivity curves on a weekly basis instead of the typical monthly cadence.

Car Segments

• Car segments increased their gains this past week, up +1.99%, compared to +1.58% the week prior.

• All nine Car segments had gains exceeding +1.00%, with Compact (+2.45%) and Mid-Size (+2.62%) Car segments exceeding 2%.

• Two weeks ago, the Premium Sporty Car experienced the smallest Car segment gains at +0.32%, but this past week the rate of gain rose to 1.48%.

• The mainstream Car segments continue to have the highest amount of demand, as their price point makes them attractive for buyers using stimulus and tax return money for their vehicle purchase, but Luxury segments are also seeing significant week over week gains.

Truck Segments

• Truck segment gains are also growing each week, with this last week seeing an increase of +1.73%, compared to +1.44% the week prior.

• All thirteen truck segments reported gains over 1.0%, with Sub-Compact Crossovers (+2.64) and Minivans (+2.46%) exceeding 2%.

• Full-Size Trucks continue to gain momentum with another large increase of +1.91%, compared to the prior week’s +1.62%.

• As supply chain disruptions force OEMs to prioritize production of their profit leading models, the Compact Van (+1.78%) and Full-Size Van (1.06%) segments have been left with little supply in the market, further fueling the growth in values of these niche segments.

Newer Used Vehicles (0-2-year-old)

Driven by an extreme shortage of rental returns and limited inventory of new vehicles, the price trends of newer used vehicles have started to diverge from older units. The table below shows the average weekly price changes for 0-2-year-old vehicles.

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

Car segments                           +2.00%      +1.57%              +0.21%

Truck & SUV segments          +1.55%      +1.51%              -0.04%

Market                                     +1.68%     +1.53%               +0.04%

Weekly Wholesale Index

2020 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 year. We saw a similar picture in 2009, at the end of the Great Recession. It appears that 2021 will not have typical seasonality patterns. The spring market arrived about 7 weeks earlier and with much stronger price increases compared to a typical pre-COVID year. The graph below looks at trends in wholesale prices of 2-6-year old vehicles, indexed to the first week of the year.

Monthly Retention Index (March)

As we have reported for the last two months, wholesale prices have been increasing at an unprecedented rate. Black Book’s Used Vehicle Retention Index in March was 141.2 points, an 8.9 point (or 6.7%) increase from February (132.3). The Index currently stands 23% above where it was this time last year, right before the record drop due to the start of the COVID-19 related economic closures.

Retail (Used and New) Insights

• 2021 Q1 new car sales results were released last week, with most OEMs reporting gains compared to Q1 of last year, despite the supply chain struggles that impacted most of the OEMs throughout Q1.

• The global microchip shortage continues to present challenges for many OEMs.

  • Up until now, Hyundai had not faced any impacts as a result of the shortage, but last week they announced plans to suspend production at their South Korea plant starting this week.

  • Ford continues to see production struggles, the latest being their top-selling F-150 full-size truck production in Dearborn and Kansas City that have planned suspensions starting this week and planned overtime cancellations extending into June.

Used Retail Prices

With the proliferation of ‘no-haggle pricing’ for used-vehicle retailing, asking prices accurately measure trends in the retail space. Retail demand slowed down at the end of last year, and thus resulted in declining retail asking prices over the last several weeks of 2020. As demand rebounded in January, retail prices seemed to lag wholesale prices – retail asking prices continued to decline throughout January and remained stable in February. March had an accelerated growth in retail prices, but the rate of growth is still lower compared to the increases of wholesale prices. This analysis is based on approximately two million vehicles listed for sale on US dealer lots.  The graph below looks at 2-6-year-old vehicles (similar to our wholesale price index).

Volume

Used Retail

Used retail listing volume stayed essentially flat since the beginning of the year but remains at levels above where the industry was in January, during the pre-COVID time of 2019.

Days-to-turn have been increasing since November and is approaching historic average level. However, this trend has started to reverse lately, as retail demand picks up across the country as a result of tax returns and the additional round of $1,400 stimulus checks being deposited into consumers’ bank accounts.

Wholesale

• Wholesale supply continues to be tight and it doesn’t sound like it is going to get better anytime soon. Even as prices continue to rise, sales rates remain incredibly strong due to the lack of new and used inventory and strong retail demand.

• Delays in new inventory deliveries are forcing fleet and rental companies to keep units in service longer, further depleting the availability of used inventory in the market.

• Consignors are reporting that they have slowed their rate of increases in floor pricing, but despite this, their transaction prices continue to rise each week.

READ: Reinsurance: The Ultimate Key Manager Retention Tool