This stimulus economy is producing the weirdest effects.
By Wolf Richter for WOLF STREET.
This has been an amazing sight: The used vehicle auction market’s descent into the deep-freeze during March and April, in terms of volume and prices, and then the phenomenal spike in prices into the summer, and the reversal starting in late August and accelerating in September and early October.
In the week ended October 4, auction prices for vehicles up to eight years old declined 1.2% from the prior week, the seventh week in a row of price declines, according to J.D. Power data, released this afternoon. Its weekly price index is now down 4.8% from the peak of the price spike in mid-August, but remains substantially above pre-Pandemic levels:
From a different and long-term point of view, the monthly Manheim Used Vehicle Value Index, which tracks auction prices and is mix-, mileage-, and seasonally adjusted, fell in September after a magnificent spike over the summer.
A month ago, in its August release, Manheim, the largest auto auction house in the US and a unit of Cox Automotive, had noted that values were rising at a “decelerating pace” in the first part of August and then began backtracking in late August. In September the index fell 1.6% from August, but is still up 15% from a year ago – a stunning historic collapse-and-spike:
In terms of Manheim’s “Three-Year-Old Index,” it fell 2.9% in September. Manheim Market Report (MMR) prices fell at “an accelerating pace over the four full weeks of September”; in the last full week of September, it declined 0.9%, “the biggest weekly decline in 22 weeks.”
The chart below, via Manheim’s October Presentation, depicts the Three-Year-Old Index for past years, and in bold purple for 2020, in terms of how prices changed from week 1 of each year (=100%), with prices generally declining later in the year. But 2020 has been a spectacular outlier, though the decline now too has set in:
As a sign of our times, Manheim reported that at its auctions, 87% of the vehicles were purchased on its digital auction platforms – “Dealers are choosing digital over physical,” it said. And overall auction attendance, fired up by the surge on its digital platform, has grown by 5% from the pre-Pandemic weeks in 2020 to an average of 87,900 per week in weeks 22-29.
But the beginnings of recent price declines are no match at this point for the price spikes in prior months. All major vehicle categories showed year-over-year price increases in September. Used pickups have been red-hot for months and on a year-over-year basis, were up nearly 26% compared to September last year – astounding price distortions!
During the Good Times, in an average week, over 110,000 vehicles up to eight years old were sold at auctions around the country, according to data by J.D. Power, a market research company focused on the auto industry. These auctions are where vehicles from rental car companies, leasing companies, other fleets, repossession companies, and the like are sold to auto dealers. The wholesale market underpins not only the used vehicle retail business but also the new vehicle retail business.
During the worst week in April, volume collapsed to just 18,000 vehicles and dragged prices down with it. And then auction volume and prices whiplashed the other way. Prices continued to spike into August, but weekly auction volumes began tapering off in late June and have since been substantially below pre-Pandemic levels:
This turmoil in the wholesale market is happening even as used vehicle retail sales by auto dealers following the freeze in March and April have not yet come back to last year’s level. In September, at a seasonally adjusted annual rate (SAAR) of 20.2 million vehicles, sales were still down 2.5% from September last year, according to estimates by Cox Automotive, after having been down about 2% year-over-year in August.
So it’s not really sudden pent-up demand on the retail side since retail sales are still trying to claw back to pre-Pandemic levels and haven’t quite gotten there yet. The pent-up demand and stunning overshoot in prices occurred on the wholesales side.
Some of the wholesale pricing craziness over the spring and summer has been filtering into used vehicle retail prices. Even the Bureau of Labor Statistics, which produces the infamous Consumer Price Index, came up with a stunner.
First, I want to point out that its CPI for used vehicles in June, despite some fluctuations over the years, was still flat with 2003 though used vehicle prices might have surged 50% over the period. How this disconnect also happened with new vehicles is explained by my F-150 Pickup and Camry Price Index which totally crushed the CPI for new vehicles.
But in its latest CPI report, the Bureau of Labor Statistics said that used vehicle prices in August soared by 7.4% since June, the largest two-month price spike in the data as far as I could see going back to the 1990s.
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Hertz picked an excellent time to go bankrupt and offload 200,000 vehicles.
Praise the lord, I thought I saw the prices softening. I was sending emails via web forms if various listing were still available. I was getting return calls and txts from 250mi away. That wasn’t happening during the summer months.
lots of paper tags here
then I go to rentals I take care of and boom there they are
of course they are LATE paying rent half time, wonder what % is delinquent?
still driving my 2001 truck – paid $6k for it and it’s nick name is T-Rex
Still driving 2001 f150 I bought for $1500, 5 years ago.
Still driving a 2003 Nissan Frontier 2wd king cab. It has 206,500 miles on it. Last month a guy driving a newish Dodge Charger stopped and asked me if I wanted to sell it. I said no, he said it would make a great work truck for him then he drove off.
My brother has an all wheel drive Volvo with 260,000 miles on it. His wife drives a Honda Pilot with 240,000 miles on it.
This sort of thing runs in the family I think.
It’s called “sustainability come true”.
A friend pointed out that here, the DMV is behind on issuing real plates which might account for the high number of “30 day tags” I see.
What’s in a name … LOL.
Perhaps the billions in biz PPP is filtering down to wholesale prices?
I did read tonight that the GOP agreed to $1,200 per adult and $1,000 per child (versus the previous $500 per child). So in April a family of four received $3,400. If the next stimuls passes soon, a family of four will receive $4,400 (family of four making less than $150,000 MAGI per year). So at some point, we are talking real money that could be used to buy all those used vehicles that wholesale is over-paying for right now, right? At $7,800 for 2020, perhaps another $5-$8k in 2021, 2022, 2023, etc? Some people need stimulus sure, yet how do we keep stable prices if the govt sprays $8k per year at every family instantly. We might just get that Fed worshiped Golden Calf of Inflation idol fantasy that turns into our Fed induced stagflation nightmare…
Nothing is passing soon. Those checks aren’t the issue.
House is t even I session until after the election.
Dang. Bought 8 year old vehicle just before Labor Day – at the peak of the frenzy. Funny, so did 2 friends….shoulda known I was bein’ a sheeple. Oh well, it is a nice vehicle and since my other one died a horrible death, I didn’t have much choice.
Still driving 2003 Chevy Silverado or our 2011 Subaru Outback. Both bought new, no plans to replace either in the next 5 years. Regular maintenance and keep garaged, and 15-20 years is easily possible for most vehicles. Previous vehicles were a 1986 F-150 and a 1998 Honda Accord.
My bimmer got totaled right before the virus lockdowns. I feel insurance paid me twice what I could sell it for. And saves me $200 in SF parking cost. I’m thinking to get another one when people start giving cars away.
Wolf car articles are like an invitation for everyone to post their personal car history. I think I’ll just stop reading the car articles.
Zan-like it, or no, an awful lot of ‘Muricans love, and will love, talking about wheels, even if the demographic is slowly trending down…
may we all find a better day.
Well, I agree, but where else to get all the page views needed keep Wolf’s ladies in diamonds and minks?
Some of his most financially/economically insightful posts get the fewest comments, sadly…
Actually, the data in Wolf’s post itself is very interesting, it is commenters who only want to talk about their bitchin’ ‘Stang from the summer of ’69…
Own a 2009 Skoda Octavia with 59,000 on the clock. It’s a Volkswagon Passat under a different badge(making it £8000 cheaper for the same car) Good car…all the taxi drivers use it, with many getting over 250,000 miles….. Interesting to see if you, in the USA, get the “B” badge lables over there or do you just get more expensive Volkswagon…… The other Volkswagon “B” Badge over here, is a company called Seat, which is even cheaper….
We get “A” label, plus $10-20K for bells and whistles, plus $500 for floor mats and second key.
I read that Skoda is sold in almost every country except the US and Brazil. They are getting popular in China. The larger, more expensive taxis are almost all Skoda.
Did anybody else notice what Silver did yesterday Up almost 6 percent in a day I’m going out for a nice fillet medium rare
Ill take a fillet, medium-well, with ketchup.
How many need cars to drive around inside their COVID-19 shelter in place domicile?
I got my oil changed right before the Pandemic. Since then I have put about 350 miles. I have barely been driving since I’m no longer driving to work and not really going anywhere. I take my motorcycle out for joy rides to keep my sanity. When the weather gets colder I will probably start driving a little more (I’m in So Cal).
I was looking all summer for a used F150 for towing purposes. Nothing fancy. Just standard-cab work truck trim level. I was shocked by the asking prices. Didn’t pull the trigger and I think I’ll wait a while to see how this shakes out.
I think that there will be a slew of used trucks, RV trailers, and boats on the market over the next couple of years.
TAFKAM,
If you don’t need the box, body-on-frame SUVs make just as fine of a tow vehicle as a full-sized pickup, maybe better because of the shorter wheelbase. Just a thought, to save some $$.
“I think that there will be a slew of used trucks, RV trailers, and boats on the market over the next couple of years.”
That’s what I think… but I have been known to be wrong :-)
Looks like the people moving central from the high-priced coastal areas bought a pick-em-up truck, some acreage, and a shack and joined the rest of us hilbillies. All the spare land has sold within six months in my area of the Ozarks. And the areas we have been 4-wheeling for fifty years have those dang Califirnia surveillance cameras and Keep-Out signs up now. Go home.
BEE careful BL,,, back in the area where Boone used to live and move when the hood got too crowded, as measured by when you could see the smoke from the neighbors cabin, folks in my area used to come out with shotguns to ”greet” 4 wheelers, etc., that were riding through without permission…
Better cameras than guns as a greeting, eh?
LOL for sure. I hope it’s really progress moving in.
Brant, are people living in all of them? Or are some empty or for rent?
I am forever following a temporary tag. “The Prez” mailed a whole lotta down payments last spring. Repo should be a great business for years.
This trend is confusing, shouldn’t pickups be selling for less because all the unemployed are dumping them and buying vans to live in instead?
THAT is funny!
No opposite. Men who had regular jobs are now contracting, doing handyman work. Work trucks with a full size bed are at a premium. The economy is going underground.
Good luck competing with 18 year old Hispanic kids I decided it was a fools game and just retired early I made more money in 1985 than was possible in 2010 believe it or not I would hate to be young and have to try to survive today in contracting
Petunia,
Over spring and summer, about 2/3 or the unemployed made more on unemployment compensation (extra $600 a week) than they had on their wages. Also, there were lots of people who saw no impact on their income (the work-from-home folks and others), and people felt rich because stock prices were soaring… Half of the population in the US could starve to death, and if 30% got a good deal and felt rich, you’d have enough demand for all kinds of crazy stuff, despite the misery.
First of all – forbearance. People saved a lot by not paying rent and mortgage.
Second – people moving to suburbs, and they need a vehicle. No more Uber rides.
It would be great if you could write a story about vintage comic book prices
Collectables all over the place have climbed. Arcade and pinball machines have been for a while. I knew something was up when Realtors started showing up in the hobby, and seemed mostly interested in flipping them. Vintage synthesizers and music equipment has climbed a bunch. Vintage video games (Nintendo stuff, some DOS software, other systems) and some of the computer systems as well (Commodore Amiga.)
A lot of this could be due to the YouTube stars raising interest in these subjects and new people wanting to experience it.
People live in PUs too. They just throw a camper shell on them. Take it off when hauling stuff.
As a son of a mechanic/millwright, who has absolutely no aptitude when it comes to vehicles (except for gapping plugs and points, but who cares at all about that), I cannot imagine buying any vehicle without my mechanic’s having checked it out first. Scary thoughts occur about what those 87% of people who buy from online sales. (Forgot to mention that my first car had a solenoid problem that was fixed with a decent crack with the handle end of a screw driver!!). How can you know if you are getting something decent, or worse, something that has been written off by insurance?
Carfax is an enormous help in used car searches. It purports to offer a record of all interesting events involving the “vehicle.”
That only works if the repair/maintenance facility takes the time to input the summary data. A LOT of independent shops don’t bother.
My 2013 Hyundai Santa Fe was banged up by my dear wife three times , mostly fender benders, and I had it fixed out at a small body shop and paid cash since the repairs were less than $1K (which was my insurance deductible). The shop owner only reports insurance claims to Carfax.
When I traded the car, the Carfax was snow white clean for the body work. Dealer maintenance was reported for oil changes, etc.
and I drive an very much older vehicle with a salvage title which has no structural damage because the cost of the body work exceeded the value of the car.
Concept:”pre-purchase inspection”.
What a lender on an aircraft purchase (whether piston, turboprop, or jet) will require before completion of loan.
Deferred maintaince issues can become real expensive very quickly. Aside from the A&P, or head of maintenance, not willing to put their lively hood on the line [or in court] if its not kosher (airworthy).
BTW if an aircraft crashes and deemed not airworthy by NTSB investigation, insurance won’t pay. Irrespective of the actual cause [usually pilot error] of the crash.
Amazing how many folks will buy a car w/out having it inspected by a technician who knows the brand.
“As a son of a mechanic/millwright, who has absolutely no aptitude when it comes to vehicles (except for gapping plugs and points, but who cares at all about that)”
Cars haven’t had points to gap since the advent of CDI ignitions (1970s?)
Same thing happened to me. All my greatest skills overnight obsolete & replaced by techno automation. Navigation replaced by gps apps: I could find cold liquidity in the middle of nowhere any time blindfolded. Driving: I drove a million miles with only a couple of minor incidents in half a decade. I could drive 19 hours and 2000 miles on 3 coffees, a monster and gas station hot dogs. Now people just sit back, fall asleep and wake up at their destination in their self driving car. Counting and concealing money replaced by digital currency: I could count bundles and stacks so fast my fingers burned and learned to hide the cash away from thieving siblings, roommates and wife. They could and did tear the house down and never found anything. Saving: I’m worse than an OCD squirrel with a lethal credit allergy: I watch my net-worth diminish drastically by negative interest/inflation as my neighbors move away in their new cars to their new houses after their exotic vacation all on credit. Kids should grow up to be central bankers instead of blackout drinking every night.
1) Fred : Total Vehicle Sales : up from 9M in Apr 2020, 50% below 2015 high, to 15.6M in Aug. A lower high, 2M shy of Feb 2020. New car sales LT trend is down for five years.
2) Used car sales volume almost reached Feb 2020 level, but prices are
higher.
3) Dealers prefer used cars for better profit margin. Used cars sales cannibalized new car sales.
4) It’s all about money.
5) BRK, the large bank index, was down to Oct 5 1998 low @ 54.57 in Mar 23 2020 low @ 55.40.
6) There is no recovery for the banks. The banks are ugly like they used to be in 1998.
7) Dealers pay premium interest to the shadow banks, to buy in wholesale quantities, in bulks .
8) Dealers customers, buy one pcs at a time, pay higher
interest rates, because it’s risky. Nowadays People cannot afford brand new car prices, especially pickup trucks.
9) Is it possible that one day Manheim will ask themselves : where are the customers, after Apr 2020 low will be breached, when there will be nothing going on in the market ? the answer is : YES !
10) Who is responsible for the decline of Total Car Sales from 18M to 9M
in Apr 2020 : silicon valley. Hi tech hijacked Detroit over a decade ago.
Paradox: greater % repo’s occur in economic booms than busts. Easy credit expedites purchases that will come back to bite/haunt the consumers.
I wonder if the used vehicle prices are just catching up to the new vehicle prices. If new vehicle prices rise 30%, that should translate to a 30% rise in used vehicle prices down the road.
This may be why used truck prices are rising fast. New truck prices rose very fast over the past 8 years.
The two areas of highest price increases are trucks and luxury sedans. I think the wealthy became a lot wealthier because of COVID, so they are buying luxury vehicles. Trucks also benefited from COVID because they are used for towing RVs and boats for local travel. Instead of dropping $30k on a European vacation, many wealthy people bought RVs, boats, and trucks. I’ve seen lots of first hand evidence of that. The campgrounds and RV parks are the fullest they’ve ever been.
In short, any product that targets the wealthy is selling very well.
Returning to the 70’s it looks like. Inflation in the strangest places. Eventually it all came together, and gold took a ride. Could we have an inflationary recession, after the FED pumps trillions into a zombie economy?
And Gold is getting ready to blast off to new all time highs again from the looks of things Look at all the money created since the 2011 high of 1930 Gold should be over 3000 by now
So they will dig out more gold at 3K.
When the $ goes down gold goes up and vice versa.
Gold mkt remain manipulated by Banks with Fed/CBers behind.
There are 3 Trillions in loans issued in US $ abroad, which keeps the support for $. Beside US $ is the global currency 61% compared 2% of Yuan.
Money supply is increasing but NOT into economy ( with Debt increase, velocity goes down) unless Fed deposits directly bypassing Banks and the Congress! Would they allow it!?
Servicing the debt will become a problem even under ZRP, since the global Economy is slowing down with income stream for most Companies going south + pending defaults in the comin months especially after December.
BTW: How many industries or sectors of the Economy the Fed(CBers) can keep on BAILING OUT and how long in the post Covid 19!?
Premature death ( NOT the continued devaluation) of US $ is delusional, when compared to the status of rest of global currencies!
One of the few groups with year over year big revenue, cash flow and earnings increases- the miners!
THM is a gem…..look at new ownership and reserves
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New car models coming out in 2021 will have roughly the same price for the base model, but all packages after the base model will increase in cost 2-4 thousand dollars. Some of the packages will lose content as some of it will move to higher end models and stay there for the foresable future. Individual elements that are deemed low relevance will be offered as a separate item outside of packages.
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Also the model cadence will decrease and we will start seeing , in the next 5 years, a reduction in car variety in terms of new models offered by manufacturers, as they are trying to reduce development and tooling cost. Quality reduction is also imminent since projcts previously considered as a “waste of timme” are now priority as the new direction is towards cost reduction.
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A lot of changes are coming to the customer and they all have to do with price increase, lower quality and less options. All this makes me think used cars up to 2020 will be a better deal then new ones after 2020.
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Word: Scion (discontinued)
All Toyota running gear.
“Bulletproof” termed by mechanics.
Cabs (Pdx) are 50-60% comprised of Scion boxes.
Avg 350-400k plus (miles) w/no powertrain failures.
1) A TX freeze on fracking will cause inflation due to the global climate change.
2) Cheap unleaded gas at the pump, to fill the tank, retard inflation.
3) Gold will not rise further without the help of higher oil. WFH empty commercial RE, deplete banks best collateral, can send BRK down to 2008/09 levels.
4) Martingale stimulus cure the pain, but we don’t know if, or when, the
downtrend start again.
5) BRK June 2020(H) failed to reach 1998 buying climax level. BRK in a trading range for 22 years, despite trillions of central banks repeated attempts to stimulate inflation expectations.
6) If BRK will drop below Mar 2020 low, Repo trucks, hooked online
to the failing banks, will dump inventory on Manheim, when there will be no demand and the used car market will slump.
7) Stanford, CMU…self driving cars are doing well in the air and the bottom of the sea, but caused a road rage in new car sales.
comment moderation : the pontiff spoke from the white house outer balcony.
That’s basically the chart of lumber. Slight dip in March when everyone is thinking normal recession, but then 300% in April until late August. slight correction, but still 200% from March lows.
Just a reminder that we all got this wrong including me.
People don’t make car choices on short term worries. They buy the one that meets all the potential needs they think they’ll have over the expected time of ownership.
This data tells me the airlines are toast for at least 5 years — almost everyone is expecting to drive everywhere. It also says people want to keep their options open. A reliable car is crucial to mobility, freedom and employment in the USA. People know this and are getting one while their credit score allows them to.
Note on credit scores: banks have been cutting credit lines left and right. This has the effect of lowering overall FICO scores as people’s available credit tanks. Simultaneously, I suspect the rating agencies are tweaking the algorithms to penalize high credit card use right now.
Very interesting article. This is not what I would have expected (had you asked me 6 months ago). Same thing about the stock market…. not what I would have expected.
Makes me wonder what things will be 6 months from now.
One of many policy mishaps.
For the ordinary person there are two sure things about buying a car. One, you’re going to lose money on it and two, the more you spend the more you’re going to lose. Changing your car is a mug’s game. Motorcycles on the other hand…..
Evidently there is a market for both used and new cars exported from the US by straw buyers. “A single car can earn a straw buyer anywhere from $500 to $7000 in commission.” (2018). That might account for some distortion. New cars may be shipped to China, used cars may go to Africa.
You can see similar distortions for used clothes in some urban and smaller city thrift stores. In some areas groups of south east Asian women in particular will basically clean out the better clothes in most thrift stores in an area and ship the clothes to Thailand or such for resale. It can be a full time business.
Same with real estate, although there’s no shipping involved.
Straw buyers may be common for bigger ticket items. No one knows as no one keeps track of it AFAIK. Even if they did it would be a very rough estimate.
Chart of gdp per capita, 2 year treasury and
wilshire 5000. This is the story of America falling apart:
https://fred.stlouisfed.org/graph/?g=wDVt