BLACK BOOK – Wholesale Prices, Week Ending July 10th  

Wholesale values continue to decline after a monstrous 22-consecutive weeks of gains; however, sales conversion rates were also down last week. We anticipate that dealers will begin gradually and moderately reducing their floors.

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

Car segments                          -0.47%         -0.10%                 -0.47%

Truck & SUV segments         -0.28%         -0.02%                  -0.28%

Market                                     -0.33%        -0.04%                  -0.35%

Car Segments

• On a volume-weighted basis, the overall Car segment decreased –0.47%. For reference, the previous week decreased by -0.10%.

• On a volume-weighted basis, the overall Car segment decreased –0.47%. For reference, the previous week decreased by -0.10%.

• Mid-size car segment had the steepest decline at -0.81%, followed closely by the Luxury (-0.76%) and Compact (-0.73%) segments.

• Six of the nine segments declined this week.

Truck / SUV Segments

• On a volume-weighted basis, the overall Truck segment decreased -0.25% this past week. For reference, the previous week decreased by only –0.02%.

• Compact and Full-size Van segments had the strongest weekly gain at +0.44% and +0.36%, respectively

• Small Pickups had the steepest decrease at –1.03%.

• Nine of the thirteen segments declined this week.

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

Driven by an extreme shortage of rental returns and limited inventory of new vehicles, the prices of newer used vehicles have been experiencing large weekly gains in the Spring. While wholesale prices are exceeding MSRP in some cases, the rate of increase has started to slow down in at the end of June. During the last week wholesale prices of these newer used units started to come down.

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                          -0.45%        -0.05%                -0.33%

Truck & SUV segments         -0.15%         +0.04%              -0.19%

Market                                    -0.23%       +0.01%              -0.24%

Weekly Wholesale Index

Calendar year 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. Calendar year 2021 has not had typical seasonality patterns as the market continues to have rapid increases in wholesale values. After reaching record heights at the end of June, wholesale prices started to slowly come down in the first weeks of July.

The graph below looks at trends in wholesale prices of 2-6-year-old vehicles, indexed to the first week of the year.

Black Book Monthly Retention Index for June

Wholesale prices peaked in June and started to decline the week before July 4th. Demand for new vehicles remained strong as inventory continued to drop almost daily. Available used inventory was increasing in June as demand cooled off a bit, although we were still about 8% below where we started the year. Low incentives levels on new vehicles and limited new supply due to production slowdowns (aka chip shortage) and so on, helped the Retention Index to increase for the sixth month in the row to a new record. In June, all segments increased although at a slower rate than in May.

Retail (Used and New) Insights

• Ram announced that it would begin production of a battery-electric version of its 1500 pickup by 2024. They plan to offer battery-electric versions in the majority of their segments by 2025 and intend to roll out electric versions in all segments they cover by 2030.

• Jeep announced a zero-emission 4xe version of every model by 2025 and revealed the Grand Cherokee 4xe PHEV for the 2022 model year.

• Dodge revealed plans for a battery-electric muscle car; it is expected in 2024.

• VW launches over-the-air software updates for electric ID family – they plan to update the software in their ID cars every three months. The current update includes optimized surroundings recognition, upgrades to the infotainment system, and additional performance and stability improvements.

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 for the last several weeks of 2020. As demand rebounded, retail prices have lagged slightly behind wholesale prices, but March had an accelerated growth in retail prices. In April and May, retail prices picked up speed as demand accelerated, fueled by stimulus payments, tax season, and shortages of new inventory. As we move into Q3, retail prices continue to increase. Currently, retail prices are nearly 25% above where we started the year.

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.

Used Retail

Current used retail listing volume is about 10% below the start of the year. The inventory levels have been slowly but consistently increasing over the last three months, as we start to see some softening of retail demand.

Days-to-turn has continued to decrease since the middle of March as sourcing both new and used inventory continues to be a challenge; it now stands just below 32 days, which as the graph below shows, is lower than we have seen in the recent past.

Wholesale

As floor pricing remains strong and the availability of average and clean vehicles remains scarce, conversion rates have started to slow down. Average sell rate now sits around 67%, which is the lowest average rate since mid-March.

Despite the limited inventory on dealer lots, dealer lanes continue to have higher volume at auction, while manufacturers’ remarketing lanes are offering less and less in open sales channels. Dealers have found creative ways to diversify their source of inventory, and their innovation seems to be paying off, as some continue to have record-breaking sales months.

Sellers are becoming more flexible with their floors in the lanes as vehicle values start to decrease. With semiconductor chips still in short supply, the inventory pipeline continues to be extremely limited. Because of the scarcity in the wholesale market, vehicles with slight damages or open recalls are still selling, if the price is right.