What the Heck’s Going on With Used Cars and Trucks?

About 40 million will be sold this year, and prices are rising.

Manheim, the world’s largest wholesale auto-auction company, reported that prices of used vehicles that went through its auctions jumped again in October. Its Used Vehicle Value Index – which is adjusted for mix, mileage, and seasonal factors – rose 1% from September and 8.1% from a year ago. It started rising in March, months before the hurricanes hit Texas and Florida. It has risen seven months in a row. It’s up nearly 10% from the low point in March. And it looks like this:

Prices in all its categories rose in October on a year-over-year basis:

  • Pickups: +11.7%
  • Vans: +9.2%
  • SUVs and Crossovers: +8.8%
  • Luxury cars: +7.5%
  • Compact cars: +6.6%
  • Midsize cars: +1.3%

Manheim ascribed the rising prices to two factors: One, strong retail demand; and recently the replacement demand after the hurricanes. This along “with a reduction in available supply has caused wholesale inventories to tighten,” it said. “The impact to the wholesale market was widespread, resulting in abnormal wholesale price gains for another month.”

Used-vehicle unit sales in October rose 3% year-over-year, according to Cox Automotive estimates. The Seasonally Adjusted Annual Rate (SAAR) of sales was 39.7 million vehicles in October and 41 million in September.

Used-vehicle sales for the whole year 2017 could set a record north of 40 million, up from 38.5 million in 2016 and 38.3 million in 2015. By comparison, new-vehicle sales in 2016 came to 17.5 million, a record that sales in 2017 may not reach.

Vehicles less than four years old are the dominant category due to the influx of cars and trucks coming out of rental fleets that are typically one or two years old, and lease returns that are typically two to three years old. According to Manheim, so far this year in that segment, retail sales jumped 14%.

But it’s not so clear-cut.

Used vehicle retail sales in the third quarter, according to Edmunds, declined 3.2% year over year to 9.36 million units, from a record Q3 in 2016 of 9.67 million units. The report blamed the hurricanes, “as major markets in Texas and Florida both experienced a drop-off in sales.”

About 6.46 million units in Q3 were sold by independent dealers. The remaining 2.9 million units were sold off the used-vehicle lots of franchised new-vehicle dealers.

Prices rose – but only a tiny bit, according to Edmunds. The average transaction price for a retail used vehicle in Q3 was $19,402, a gain of only 0.9% from a year ago ($19,232). This comes after the average transaction prices rose 17% over the five years from Q3 2012 to Q3 2017.

Average mileage on a used-vehicle transaction fell to 52,648 miles, down 14% since Q3 2012. Newer vehicles are gaining share. Vehicles that are three years or newer accounted for 59.4% of sales, vs. 46.3% in Q3 2012.

“This is largely due to the pipeline of low-mileage lease returns that continue to hit the used market in record numbers,” Edmunds said. As a result, “an overabundance” of these newer used models is “sitting on dealer lots for longer than older – and less expensive – models.”

These newer, low-mileage vehicles carry the highest price tags that represent the upper corner of the price spectrum, with pricing that rivals that of new vehicles. This presents the industry with a dilemma that is only primed to get worse. High levels of lease returns coupled with increasingly stringent mileage limits will feed an expanding pool of low-mileage used vehicle inventories that have proven to have a limited buying audience.

Thus the used inventory is “mismatched with demand,” Edmunds said. “While more consumers are searching for affordable transportation, the bulk of retail used inventory is made up of 3-year-old and newer used vehicles.”

The older higher-mileage units are selling like hot-cakes because they fit the budgets of used vehicle buyers. But lease returns are hitting the market “at unprecedented rates and will exacerbate the disparity between what is desired and what is available in the used market.”

Prices are rising faster at the low end: “Despite slightly stagnating values for newer vehicles, values are consistently higher for 10- to 15-year-old vehicles,” Edmunds said. “The age group represents slightly less than 10% of the sales share, but this pricing strength does help to buoy the overall values.”

Another voice, J.D. Powers’ Used Vehicle Price Index had been on the forefront for years with declines in used vehicle wholesale prices. The index dropped 13% from the peak in the spring of 2014 to the trough in the spring of 2017, with a good part of the plunge happening in late 2016 and early 2017. But in September (October data is not yet available) prices rose for the second month in a row, pushing the index up 3% from the low this year. It remains down 6.6% year over year.

So the consensus is prices are rising — but the degree is in the eye of the beholder. While any uptick will be good for the industry and may support new vehicle sales, it’s not going to be helpful for used-car buyers for whom a price that fits their budget is the primary consideration.

Banks have started to tighten lending standards for prime and subprime borrowers, and it shows. Read…  Next Phase of Carmageddon: the Banks.




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  36 comments for “What the Heck’s Going on With Used Cars and Trucks?

  1. DarkMatter
    Nov 14, 2017 at 1:36 am

    Once post-hurricane demand dries up, they’ll repeat the gold ole shadow real estate plan refined for auto markets. Shouldn’t be too difficult to pull off.

    • Haus-Targaryen
      Nov 14, 2017 at 9:27 am

      The prices for older, higher-mileage cars are rising at a faster rate than newer low-mileage used cars are? No…. you don’t say.

      I would imagine it having something to do with the average consumer having no savings and little disposable income drivers their beater until it dies, and then get something inexpensive to replace it with, again high mileage and old.

      Further, as credit terms become more strenuous for poor-credit and no-credit buyers — the “average Joe” who is living paycheck-to-paycheck (in the U.S. — if you have any savings what-so-ever you are not “average”) — is limited in what he can spend to the cash he has on hand. As more people fall into this category without the necessary “bump” in affordable [for this demographic] cars, the average price of such a used car MUST rise.

      Meanwhile, idiot dealers are sitting on their used inventory for months at a time so as to not take “a hit” on the car.

      I thoroughly look forward to the next financial apocalypse, if for no other reason than to watch many dealer networks burn to the ground.

      • Joe
        Nov 15, 2017 at 10:25 pm

        I agree with that sentiment.

        I’m a mechanic so I only change up once I’m bored with it and always I’m shoping with a 2k max.

        But I worked aftermarket for cars and trucks advertising cars that a regular human could never afford… And really… Why would they want to?!

        I think all cars are priced about 70% over utility and the mark ups are insane… You could commission a hand built car for 30k.

  2. truth always
    Nov 14, 2017 at 1:58 am

    Wolf,
    Didn’t you have an article previously stating old vehicle values should drop? (Granted that didn’ t take FL and TX hurricanes in account)
    ———————————————————————————————-

    “Despite slightly stagnating values for newer vehicles, values are consistently higher for 10- to 15-year-old vehicles,”

    Hmm, are buyers realizing older Japanese vehicles are more reliable ? (10-15 year American cars barely function…) And are easily maintained by do-it-yourself fixers with less electronics. Is that the reason?

    • DF
      Nov 14, 2017 at 8:48 am

      I think 10-15yo American cars do OK as well. My 2006 Malibu has almost 155,000mi on it, and while it does need repairs from time to time, they haven’t been that big of a deal (*knocks on wood*).

      And yeah, I do most of the maintenance/repairs on our four cars myself.

      • Roger
        Nov 14, 2017 at 12:06 pm

        I’ve got a 2002 Saturn SC2 (the one with three doors). Nothing ever goes wrong with it. Even the paint job is like new. (Maybe it has something to do with the body being plastic.) I don’t have an excuse to buy a new car, particularly with the new cars all pretty much looking the same.

        • Evan
          Nov 15, 2017 at 2:12 pm

          Care and maintenance do wonders don’t they? Still driving my 99 Camry. I kept the previous Camry for 7 years. With proper care and driving habits, they will last a good while. No reason to replace at this time.

    • Nov 14, 2017 at 9:29 am

      Markets are messy… and so is used vehicle data.

      In the spring, I wrote several times about used wholesale values dropping per the JD Powers/NADA data. In one article I juxtaposed it to the Manheim data which never showed that drop. The CPI for used vehicles had also shown a significant drop, and I pointed that out somewhere along the line. But in recent months, both the CPI for used vehicles and the JD Powers data showed that prices were bounding off, while the Manheim data showed a surge. In one or two or three (?) of my inflation articles (when Yellen brushed off dropping inflation in June, July, August and I said she was right), I mentioned used vehicle prices that had started to bounce off as one of several reasons why CPI would come off its lows, and it did.

    • Drango
      Nov 14, 2017 at 9:54 am

      All of the car cruises I have seen are almost all lovingly restored American cars. Not a lot of car fans will bother fixing up a decades old Japanese import.

      • Mike G
        Nov 14, 2017 at 12:45 pm

        There’s sentiment and then there’s practicality. People who restore old cars for cruises are far from the typical used car buyer.

      • Paulo
        Nov 14, 2017 at 3:32 pm

        hmmmm,

        What about my restored 31 year old Toyota pickup with 335,000 km on it? The one some guy flagged me down last winter and tried to buy, right there on the street? (He almost wrecked his Ford getting to the curb).

        I would like to buy an almost new PU, but this one runs so well why bother? The truck will be 40 years old when I turn 70. maybe then. :-)

  3. Kenny Logoffs
    Nov 14, 2017 at 3:49 am

    In my 20 odd years of car buying, and almost always used, we’ve worried about the next tech and electronic.
    Horror stories about repair costs etc.
    But as stuff ages the used repair market broadens and offers sensible cost fixes.

    Agree on the weird market again… still… since 2008 ish.

    We just bought a year old BMW 335d xdrive.
    Try finding a few year old one on average miles.
    BMW seem to have forced owners to do tiny mileages and the resell the cars with high prices, competing with new cars.
    So they just sell more new cars and build up huge used inventories.

    I can see a correction coming purely on the basis of supply and demand.
    Gov seem to be encouraging demand though with scaremongering on diesels in the U.K.
    If they get that right suddenly loads of people will want these huge inventories of used but expensive cars.

  4. Colin
    Nov 14, 2017 at 5:36 am

    You’re adding maybe 2.5 million people per year. The numbers given for sales don’t sound very impressive to me at all.

  5. DK
    Nov 14, 2017 at 9:30 am

    Do the hurricane damaged cars have to be sold as “salvaged” vehicles? Is this state by state? I’ve seen quite a few cars on CA Craigslists in the 3 to 5 year old age catagory that are stated as “salvaged”. And not very discounted.

    • Nov 14, 2017 at 10:04 am

      If the vehicle had “comprehensive” insurance, and the insurance company totaled it, it will have a salvage or “flood” title, and unless the title gets laundered, that data point stays with the car over the rest of its life.

      But if the car wasn’t insured, or wasn’t totaled, there is nothing to indicate that it was in a flood. It’s “buyers beware.” You have to check yourself for visible signs, etc.

    • Haus-Targaryen
      Nov 15, 2017 at 5:48 am

      So there is currently a lot of interest in flood vehicles. There is a YouTube channel called “samcrac” in which is discusses his hobby of buying salvage/flood cars and making them run again.

      His most recent adventure involved a 2016 Chevy Spark he bought flooded from Houston for less than $1k with all taxes, auction fees, etc., etc., and with shipping he is in it for $1,500.

      After letting it throughly dry out, a few oil changes, and a very careful “once-over” guy got it up and running without issue … everything works.

      I can tell you, stalking salvage auction for some time … the prices for flooded cars coming out of Florida and Houston with lower-than-midpoint waterlines (so likely no water into air intake) and then wrecked non-flood vehicles are higher than I’ve ever seen before, despite the demand.

      Lots of people buying, for example one completely destroyed 2016 F-150 XLT and then one flood 2016 F-150 XLT. You use the destroyed vehicle as a donor car for the flood vehicle and then part the balance of the donor car out to recoup costs. Out the door prices for these are ca., $10k if you do the work yourself.

      Three years ago the same trick was about 30% less.

      More people paying with cash than credit and its doing funny things to car prices and demand.

      PROTIP: Look for Infiniti G37s from salvage auction, inexpensive, easy to work on it and due to the “premium” badge — command premium at subsequent sale.

  6. Petunia
    Nov 14, 2017 at 9:30 am

    I think people prefer the older cars with less gadgets, they have less repair problems and costs.

    I had a rental from Enterprise recently and they had few cars available when I picked up. When I returned the car there were people waiting for cars in the office. The car I brought back was turned around in 10 minutes.

    • Hirsute
      Nov 14, 2017 at 11:27 am

      I definitely fit this category. Too many bells and whistles on contemporary cars. Acura used to buck this trend, but I wouldn’t know of their current models. And death to omnipresent TV screen! It’s the iphonification of the dashboard – everything is on that screen and it takes multiple presses to accomplish a task. No thanks.

      • Snotfroth
        Nov 14, 2017 at 1:54 pm

        Amen to that. My current car is a 2012 model and probably the last one in which I’ll be able to adjust the music without taking my eyes off the road. My wife’s car is a 2015 and the crummy, convoluted touch screen frustrates me to no end.

        Adjusting the digital clock in my car involves turning a knob. Adjusting in her car requires ten times as much effort drilling down through multiple sub menus until finally at the last step the computer reports that you cannot change the clock unless the vehicle is in park — after 90% of the distraction is already done!

  7. Mike R.
    Nov 14, 2017 at 9:45 am

    I can’t prove it but suspect there is high level of collusion going on in the auto markets. There are now a handful of big players across the country that can pull this off. I believe I read an article where used cars are being moved around nationally to help balance supplies.

    Consolidation of business and industries has been occurring for many years now. Big money buys out the smaller guys. The result is to kill competition and control prices. The government has allowed this to happen (looked the other way) because the few in the know don’t really want prices to drop as they can’t tolerate any significant deflation.

    The best a person can do is learn about cars and buy directly from another seller. Make sure they have maintenance records that back up mileage as these digitial odometers are easily and regularly manipulated. Knowing as much or more than the businesses that sell the stuff is the only way people can stay ahead of thebig money rackets. In othewords, bypass the rackets as much as possible.

    • Nov 14, 2017 at 10:15 am

      Mike,

      You write: “… used cars are being moved around nationally to help balance supplies.”

      That’s absolutely true, and it makes sense. This is done in many ways.

      One way: Auctions are held around the country, and dealers (or rather their buyers) FLY to where they think cars are the cheapest. If they like the prices, they buy a bunch and have them shipped by truck to their lots. If prices are too high for their market, they might not buy anything and fly back empty-handed (that’s a lot cheaper than buying 8 cars at the “wrong” price).

      Another way is how rental car companies and leasing companies dispose of their vehicles. They can choose how, when, and where they’re sold. And they try to pick parts of the country that are not drowning in supply. And some of them have retail operations too.

      So yes, the used vehicle wholesale market is how vehicles get spread around the country, based on perceptions (not always correct) of supply and demand.

      • Nov 14, 2017 at 11:55 am

        There are used car dealer websites which tap a national database, you see what car you want, where it is and how much it will cost to ship it to you. The Carfax system has taken a lot of the risk out of buying a used car.

  8. Joe Dirt
    Nov 14, 2017 at 11:28 am

    My personal opinion is dealerships aren’t selling as many new cars, so they are buying used cars at auction because demand is higher. I don’t buy prices rising however at retail used car level….there is just too much inventory.

    I have been following a particular make/model/color/trim/mileage car for over a year now and for the most part, the inventory keeps going up and prices keep coming down. Dealerships trying to sell these cars at anything close to value are just holding out for that ONE buyer. Eventually, almost all drop the prices significantly to be more competitive…putting more and more cars available in my designated price range.

  9. Crysangle
    Nov 14, 2017 at 11:32 am

    There is a large used car export market from the US, possible there has been a shift in demand there also.

    https://www.trade.gov/td/otm/autostats.asp

    For example gives a boost to Germany, China, and Jordan but a drop for Mexico.

  10. Jack
    Nov 14, 2017 at 12:45 pm

    Interesting re: cars being moved around the country. Went to look at a Lexus hybrid at the local Lexus dealer. Had the car we wanted. The CarFax said the car was trucked in from SoCal. Now I know, from working p/t at Manheim, that it costs at least $1000/car to truck that far across the country.
    Would the dealer “eat” that cost? Heck no. I am expected to pay that freight. I told them when they get a local car off-lease give me a call.

  11. Jack
    Nov 14, 2017 at 12:47 pm

    Sorry. I live in South Carolina

  12. John M
    Nov 14, 2017 at 1:10 pm

    The odometer on one of our vehicles is just rolling over 200k miles. Its a Toyota 4Runner. The door and ignition locks needed swapping out. $200 did the trick at a car door lock specialist. The vehicle is 21 years old. I’m trying to stretch its life out the apocalypse shows up. Then I’ll trade up for a Toyota Tacoma / Tundra for sensible money. The used Toyota trucks fetch big money versus new pricing. I don’t need any of the individual used car (truck) seller telling me the insanity of a vehicle with 100,000 miles that it deserves to have only lost 15% of its new pricing.

    If we can believe that 40-50% of Americans would struggle to find $500 to cover a bill then there will be an avalanche coming soon..

    • Joe Dirt
      Nov 14, 2017 at 5:22 pm

      Exactly John M. When I pull up my updated search and it brings up 100 cars of exactly what I want within a mileage/price range it gives me a good idea. But when I periodically expand only price willing to pay by 2-3k it more than doubles the available cars. So I ask myself, why would anyone pay $2-3k more essentially exact same car when there are 100 available at lower price (all new car dealerships….not Joe auto etc or indy sellers)?

      A few will because they don’t/can’t do their own research. But the most won’t and the majority of the next batch of 100 cars selling now for $2-3k more now will slowly make its way into my ever expanding inventory. Many will be sold for sure from my inventory today, but more and more of the sold ones are being replaced by, higher trim newer models, less mileage, better gas MPG. I track it about once a week and each week is another week where I am glad I didn’t buy anything yet. What I was looking for originally in a 2013-2014 car I can get now in a 2015 or an upgraded 2014 for up to $1,000 less than a year ago….and I am only using Cars.com

  13. gunther
    Nov 14, 2017 at 2:28 pm

    Similar things happen in germany. The pricing is totally out of whack. Ten year old car with a list of defects and possible accidents with an asking of 35% of the price for a new one. The new one goes with a rebate of some 15%. A three year old demo was priced as new with some rebate. Then there are new cars sold in different countries of the eu that can be put on the road in germany no problem with over 30% off meaning they are cheaper then relatively new used ones fom germany. The dealers know the pricing but keep the prices up and miss the sale. The situation is absurd.
    Talk about a distorted market.

  14. Old Farmer
    Nov 14, 2017 at 2:54 pm

    A lot of used cars are sold person to person; there more than a thousand postings a day on craigslist in Sacramento. When you buy a used car from an individual in California, you have to register it at the DMV, and at the time of registration they will also collect sales tax (around 7.5%, depending on locality). So the purchaser is motivated to under-report the price he paid. If you paid $10k for a used car, at the DMV you say you paid $6k and save yourself a few hundred bucks in sales tax. (I’m not admitting to ever having done this myself). If data from the DMV is being used as a measure of used car prices, then actual prices may be understated.

    • Nov 14, 2017 at 4:03 pm

      Old Farmer,

      This data is not based on registrations at the DMV.

      New vehicles sales are tracked and published by the automakers. They count the deliveries from their dealers to customers; large fleet deliveries automakers make directly; and deliveries of vehicles bought directly under their employee programs. These are actual numbers.

      Used vehicle retail sales data is based on dealer surveys. These are estimates.

      Wholesale prices are gathered when vehicles sell at auctions. That’s the Manheim data set, tracking the prices of vehicles sold at its auctions around the country.

      These figures don’t include data on privately sold vehicles. DMVs around the country are not centralized. In other countries, the DMV is a national agency. Here every state has its own, and for some reason, they have not gotten together to produce a solid database with registration data. That would be great to have, though.

  15. Maximus Minimus
    Nov 14, 2017 at 4:42 pm

    Wolf, in this post,
    https://wolfstreet.com/2017/11/09/banks-tighten-prime-subprime-auto-lending-standards/
    you claim that the profit margins for new cars are razor thin. If so why don’t manufacturers (or dealers) sell directly online, and have the purchase completed at the dealership?

    • Nov 14, 2017 at 5:29 pm

      The automakers would love nothing more. But state franchise laws protect dealers from direct competition by their manufacturers. That is why Tesla had a hard time establishing factory stores even tough there are no franchised Tesla dealers.

      There are increasingly large cracks in those franchise laws. So eventually, all this will change. But dealers are well organized and they have a lot of say in state politics. And they want to protect their businesses from their manufacturers.

      If self-driving cars become a thing, and the vehicle ownership pattern changes, it may well spell the slow end of the franchise system as we know it.

      • Maximus Minimus
        Nov 14, 2017 at 8:12 pm

        Naturally, after the online purchase, the self-driving car will drive into your garage? :)

        • Nov 14, 2017 at 9:37 pm

          The theory is that many people wouldn’t need to buy a self-driving car, that automakers and other companies would own them and send them to people who need them when they need them. So no individual garage needed, no dealerships either, just service centers.

          The entire industry is fretting over this. It’s not happening over the next few years. So there’s a little time left to adjust. But investments are made with a long-term horizon. And this will be a big shift, and no one knows what it will look like.

  16. Quite Likely
    Nov 14, 2017 at 5:04 pm

    “Thus the used inventory is “mismatched with demand,” Edmunds said. “While more consumers are searching for affordable transportation, the bulk of retail used inventory is made up of 3-year-old and newer used vehicles.”

    The older higher-mileage units are selling like hot-cakes because they fit the budgets of used vehicle buyers. But lease returns are hitting the market “at unprecedented rates and will exacerbate the disparity between what is desired and what is available in the used market.””

    Reminds me of the housing market.

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