What’s Going On in the Used Car & Truck Market?

Wholesale prices spike to record. Consumers, struggling with affordability, switch from new to used.

Used car and truck prices in August at auctions in the US jumped 6.4% from a year ago, after having jumped 5.1% in July, according to the Manheim Used Vehicle Value Index. The index, at 139.7, hit the highest level in “its more than 20-year history.”

Manheim — the largest auto auction company in North America, runs about 8 million rental cars, lease turn-ins, repos, etc. through its auctions and online venues a year — explains:

Looking at trends in weekly Manheim Market Report (MMR) prices, the abnormal summer bounce that started in June continued in August. As of Labor Day, 3-year-old vehicles are now worth 4.8% more than they would normally be worth had typical depreciation occurred instead of the appreciation observed this year.

The data from those auction sales is adjusted for mix, mileage, and seasonality.

The chart below shows the year-over-year price changes in the index. Toward the end of 2017, the surge in prices that peaked in October and November was ascribed to the “replacement demand” from Hurricanes Harvey and Irma. This demand then tapered off, having turned out to be much smaller than initially estimated. Now new factors are at work:

“The strange summer price appreciation in used cars” is a function of several factors, according to Manheim, including:

  • A “strong economy at its peak”
  • “Mounting affordability challenges for the consumer that favor growth in used vehicle sales at the expense of new”
  • “The fear of import tariffs’ leading to higher prices in the future”
  • Consumer worries “about higher interest rates in the months ahead.”

This increase in demand has been met by a “flattening wholesale supply,” which “has led to faster moving retail inventory, higher sales efficiency at auction, and higher prices.”

Sales of midsize and compact cars have collapsed over the past four years on the new-vehicle side across the industry as consumers have switched from cars to crossovers, SUVs, and pickups, to where Ford has thrown in the towel entirely on these cars and where GM is in the process of pulling out. But on the used vehicle side, midsize and compact cars are the hottest of them all with year-over-year price increases north of 8%:

Except for luxury cars, all major vehicle categories experienced year-over-year price gains, but none more than midsize and compact cars because they, being priced lower, still allow consumers to deal with the affordability issues they face with crossovers and SUVs.

And for now, there is still supply of midsize and compact cars as rental-car fleets – also for reasons of affordability – are still skewed towards those vehicle categories. But that too is changing, and the price gains of midsize and compact cars show that supply from rental car fleets is not keeping up with demand.

A rental car company can obtain its vehicles in three ways:

  • Purchasing them outright without price guarantees to where it carries the risk for the price it may obtain for the vehicle when it is pulled from service (“risk vehicles”)
  • Leasing them where the leasing company carries those risks when the vehicle is pulled.
  • Purchasing them under a guaranteed buy-back program with the automaker or its finance division.

The rental car company sends its “risk vehicles,” after they come out of the fleet, to the auction or it sells them directly via its own retail operations (Enterprise is big into this).

Pricing of these “risk vehicles” at the auction jumped 8% in August year-over-year, Manheim found, even as the average mileage rose 4% year-over-year to 43,500 miles.

This mileage number is another sign of how vehicles are holding up better these days, and why the average age of vehicles on the road has been increasing over the years. Back in the late 1980s, rental cars were typically pulled with 15,000 to 20,000 miles on them. A rental car with 43,500 miles would have caused customer concerns. It would more likely have had reliability issues – taking care of customers whose rental car broke down is costly. And it would have looked iffy. But today, 43,500 miles is average!

All these prices relate to wholesales at auctions. This is only one part of the used-vehicle market. On the retail side, total used-vehicle sales in the US will close in on 40 million units this year, compared to about 17 million new vehicles. The used-vehicle retail market includes individuals selling directly to other individuals (as buyer, make sure you check the vehicle’s title history, such as with FAX-VIN). The used-vehicle market is vast, complex, and liquid with a few huge players such as CarMax or Enterprise Car Sales, nearly 17,000 franchised dealers, about 20,000 independent dealers, plus individuals selling their own cars.

Here is a structural shift with some significance for the auto industry. Read…  Automakers Take Note: Americans Are Changing How They Commute to Work

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  12 comments for “What’s Going On in the Used Car & Truck Market?

  1. OutLookingIn says:

    Anecdotal Observation: Vehicle auctions, cross border traffic.

    American’s travelling north into Canada to buy used vehicles in recent years, has always been strong. Now, more so than ever. With an exchange rate hovering around 30% makes for a low price, even with the higher priced Canadian dollar sticker amount.
    This cross border vehicle bargain hunting has grown even larger, as economic conditions continue to become grimmer for the rank and file south of the border. Once this surge of commercial traffic has worked its way through the shipping system, a return to more tougher times are ahead.

    • Used car prices in Canada have been falling for years. No one can afford car insurance. The best pace to buy used cars would be Alberta where everyone is about to lose their home/homes. They’ll take anything as they couldn’t give them away to locals. I doubt Trump will impose tariffs on cars in Canada so at the end of this month used cars will be falling in price again.

  2. timbers says:

    Two February’s ago I walk into the biggest volume car dealer in the Boston region and told the sales representative I wanted a new white Prius C expecting to pay low to mid 20’s. Shortly after waiting so long I asked what’s up, the the guy handed by a hand written offer from his manager of $16,300 for a new silver Prius C only last yrs model still on their lot. I took it. Prominately displayed was a $500 rebate (thk that was the amount) IF I financed. I accepted buy paid cash in full. The manager came over and repeatedly encouraged me to finance, even if just a short time, because they made extra money if I did. I explained if I financed I’d be forced to pay for more insurance that IMO was an over priced ripoff. I was very happy with the deal I got. He remarked it was probably the same price I paid 7 yrs ago. He was correct.

    • Marc D. says:

      You can get great deals on compact and midsize sedans. I paid only $17K for a new 2016 VW Jetta (MSRP of $23,500). And I’ve recently seen new Ford Focuses advertised for $11K. That’s a model Ford’s discontinuing. Not surprising, if they have to discount them that heavily to move them.

  3. KFritz says:

    Wait! There’s another good reason to buy a used car! In the following link (which covers other much more important issues) Bruce Schneier couldn’t buy a new car of the category he wanted that wasn’t part of the Internet of Things (IOT). Your new car can be hacked.


    • Suzie Alcatrez says:

      The internet devices in new cars will be obsolete and broken by the time they are used cars showing up at auction.

      Witness the original Nissan Leaf with its 2G cell modems that became useless after the 2G networks were turned off.

  4. p coyle says:

    annecdotal, and slightly OT but thought you might be interested, wolf. i talked to a guy who works at a toyota dealer today and he said that when people bring their cars in for expensive repairs, they are offering to not charge for the repair if they buy a new car instead. he sheepishly grinned when i asked if that meant they had to roll over whatever balance was left on the damaged car into the new loan…

  5. safe as milk says:

    i think that after years of being squeezed financially, some people who always bought new have become comfortable with buying second hand. the economy is starting to pick up and those people just want a newer used car. very few people cross shop between new and used so used prices have been creeping up.

  6. Paulo says:

    Or not buy at all. (Anecdote)

    I was going to replace by 32 year old Toyota pu with something newer, or almost new. Then, I found out my son gets some incredible discount on NA made trucks, any make or model, all because his company buys so many every year. This prompted some research and I have decided to only pull the pin if I can get something with minimal electronics.

    I can already parallel park just so so I don’t need an elocution/infrared ‘bat truck’.

    I can back a trailer just fine so I don’t want cameras.

    I live to read maps and actually plan a drive so I would never use GPS

    Tire pressure, other idiot gauges ””forgettabbaoutit””

    This leaves with some kind of special order base model….so I’ll just have to see. It’s either keep the old timer or order in something simple/base model….if possible. I think this is similar to my wife’s attitude about marriage. :-)

    My best friend, who is actually quite wealthy and can buy whatever, just keeps driving his Ford PU, 1992. He loves it and it works great. I don’t understand this car mania hype.

    • Ambrose Bierce says:

      A pickup is like your wife, the woman you love, the mother of your children, while a car is more like someone you pick up.

    • JohnnySacks says:

      Pity the guy who needs an old school dumb heavy duty work horse pickup. Now that suburbanites are clamoring for the bells and whistles and willing to pay over $40k for it all, car companies see no need to produce them.

    • California Bob says:

      re: “Tire pressure, other idiot gauges …”

      Agree with the rest of your comment, and the TPMS can be a hassle and has to be replaced eventually, but I’ve had them warn me and possibly prevent a blowout in adverse conditions.

Comments are closed.