We may well see more of these types of charts cropping up for other markets that too went haywire this year, and that too will begin to grapple with the underlying dynamics.
By Wolf Richter for WOLF STREET.
The used vehicle market – retail and wholesale – has gone through some history-making gyrations this year, and those gyrations are now being unwound. In the Good Times, about 40 million used vehicles were sold wholesale and retail per year. This year will be quite a bit below that. In November, sales lost more ground. But prices had gone haywire, and they’re now in the process of “normalizing.”
During July, August, and September, powered by skyrocketing used-vehicle wholesale prices in prior months, used-vehicle retail prices spiked by 15.1%, according to Consumer Price Index data, including a 6.7% spike in September from August, the biggest month-to-month jump since 1969. But in October, retail prices for used vehicles turned around. And in November, according to the CPI for Used Vehicles released today by the Bureau of Labor Statistics, prices fell 1.3%, which brought the year-over-year price increase down to a still red-hot 11%:
In the fall and winter, used vehicle prices tend to decline for seasonal reasons, but the CPI data is “seasonally adjusted,” and it adjusts for the typical price declines in November. So what the above chart shows is the additional price decline in November, beyond the seasonal price declines.
Given the spike over the summer, the index remains nearly 11% higher than a year ago, the biggest year-over-year price increase since the price surges following the “Cash for Clunkers” program in 2009, which was designed to boost new vehicle sales, and along the way wiped out a generation of perfectly functional used cars well-suited for low-budget buyers. But hey, let them walk. And everyone else paid more.
Retail prices react to many dynamics, including wholesale prices, which determine the costs for dealers that go to auctions around the country to buy vehicles and restock their inventory. Millions of vehicles are sold at auction every year. This is a very liquid market. The pricing data from auction sales is widely distributed in near-real time to the industry, and some of it is accessible for free to anyone doing internet research before car shopping. It forms the basis for pricing on dealer lots, from trade-ins to the prices negotiated in each deal.
Wholesale market gone haywire is normalizing.
And the wholesale auction market went haywire this year during the early phases of the Pandemic. But it’s now calming down under still weak demand and massive supply from rental car companies trying to defleet, including Hertz – its vehicles started showing up in August after it got permission from the bankruptcy court at the end of July to sell them. And used vehicle inventories, both retail and wholesale, are beginning to pile up.
The prices of used cars and trucks sold at wholesale auctions across the US during the latest reporting week through November 29 dropped 1.6% from the prior week, the 15th week in a row of week-to-week price declines, after the historic 36% spike from April through mid-August, according to data reported by J.D. Power. Wholesale prices are now down nearly 11% from mid-August but are still 3.8% higher than they’d been at the beginning of March:
The volume of vehicles up to eight years old being sold at auction has been declining since the Pandemic-peak in June. The four weeks before Thanksgiving, volume had been around 80,000 vehicles, according to J.D. Power data. Then in the week ended November 29, which included Thanksgiving, volume plunged, but that was largely due to the holiday. The 80,000-level before the holiday week is more indicative of the current wholesale demand, down roughly 19% from what is typical at this time of the year:
Total used vehicle sales volume – wholesale and retail combined – in November fell 10% from November last year, according to Cox Automotive estimates.
On the basis of seasonally adjusted annual rate (SAAR) of sales, which adjusts for calendar shifts and number of selling days, total used-vehicle sales dropped about 7% in November year-over-year to 37 million vehicles (annual rate), with retail sales down 5% to 19.6 million vehicles (annual rate).
And there is plenty of supply, retail and wholesale, at the end of November, according to estimates of Cox Automotive:
- Retail supply: 50 days, 14% above normal (44 days).
- Wholesale supply: 37 days, 60% above normal (23 days).
The way a market should work.
What we’re looking at is a market where demand has been down sharply so far this year and where an event – the Pandemic – caused disruptions of all kinds, including the bankruptcy of two large rental car operators, Hertz and Advantage, whose vehicles are part of the supply picture of the market. And all metrics went haywire.
But now the process of normalization is taking place, guided by below-average demand and lots of supply. And the market is doing its thing and discovering prices, as a market is supposed to, with pricing dynamics slowly resolving market issues.
The wholesale pricing and volume charts are particularly interesting since they’re weekly, and therefore more immediate, not adjusted for seasonality or other factors. They show what this market has been through and how it is now normalizing from the wholesale levels on up. And we may well see more of these types of charts cropping up for other markets that too went haywire this year, and that too will begin to grapple with the underlying dynamics.
Bounce back to what? The Pandemic Scrambled Long-Term Trends in both directions. Read… How the Pandemic Scrambled Long-Term Driving Patterns: Americans Already Drove Less, Hidden by Population Growth
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I have a 1994 Toyota 4×4 extended cab pickup, low, low 195,000 miles. Been in 2 accidents (of course, not my fault) and still drives great. Willing to let go for $9,999.99 USD. Comes with my famous 10/10 Warranty. 10 miles or 10 minutes whichever comes first.
Your warranty is better than my warranty. My vehicles come with a “curb warranty.” As soon as the vehicle rolls over the curb, all warranties, express and implied, expire that moment.
Wolf, how is new car sales holding up? The way this insane chart is set up. One has to wonder if new cars aren’t a bargain right now.
how many vehicles are in forbearance?
delinquent loan rates would be nice to see
MCH,
New vehicle sales volume was down quite a bit in November, in part due to the calendar shift (selling days, minus one weekend), and in part because car sales were just weak.
But there continue to be production problems (supply chain issues), and new vehicle inventories of sought-after models are not too high.
Also, fleet sales are still in collapse mode, but retail sales have mostly recovered. So on the retail side (dealers), there is no real sense of desperation.
December, the final month of the year, is when automakers and dealers pull out all stops. So you might look around toward the end of the month and see if you can get a deal.
For the industry overall, 2020 has been mega-shitty. But unlike during the Financial Crisis, production was shut down too, and so there is not a huge pile of new vehicles stored everywhere (though there are used rental cars stored everywhere).
the poor get screwed in every which way
Thought there is plenty of help from the rich, the poor largely screw themselves by screwing each other.
For example, the guy who takes on excessive debt relative to income, driving up housing costs. Meanwhile, not saving anything.
Or using a 7-year loan to pay for an exorbitantly-priced new F100, creating a price vacuum that pulls up prices for used vehicles.
Then they will complain that they have no retirement savings. (Except possibly the house owner, because the Fed will rescue him.) And the rich get richer off every mistake made by the poor.
Dale-until the rich need someone to soldier for them…
may we all find a better day.
You guys are generous.
I give a 30/30 warranty. 30 seconds or 30 inches. Whichever comes first.
Thats what she said.
I think the massive number of bankrupt rental car company vehicles hitting the wholesale market in the months ahead into 2021 are going to accelerate the price declines at both the wholesale and retail levels. Whether you want to purchase a vehicle that had 5 different drivers in a week, was put on the freeway before the engine was up to operating temperature, had smokers and tobacco chewers in it, and did not get the love you would give your own ride, will not matter in still affecting all used vehicle prices.
Many out there will find these vehicles just fine for their recently tightened budgets, especially with a still-down economy, and subprime credit is still flowing like a spring-thaw river. Cosmetically, the used rental cars will have more dings & dents, but the prices will reflect this fact and total mileage will normally be below 35,000 miles for a 2 to 3 year-old vehicle. Recent vintage vehicles with low mileage, what’s not to like?? Just have your favorite mechanic check the vehicle out first, a given.
Now throw in the work-from-home relocation of offices for many workers and industries, and outright demand for either new or used vehicles gets a kick in the face with bulging supply of used vehicles in 2021. For new vehicles at ridiculous prices, in my opinion, it will be production halt after halt at all the leading auto companies no matter how great their products are. Automakers have basically priced themselves out of the 2021 markets with a sea of cheap used cars washing over the country.
I don’t need an entertainment center/ communication command center in a new vehicle to include accident avoidance technology because I spend most of my time concentrating on the drivers around me who are not paying attention to what they are doing. With all this new stuff stuffed into new vehicles, BEING A DEFENSIVE DRIVER IS YOUR ROAD TO SURVIVAL.
Amen. I definitely do NOT want doodad electronics in a vehicle, either. Used or new.
I would like to thank Wolf for doing his articles. I felt real pleasure when I saw the email notification a few minutes ago. I am just so sick of politics, lawsuits, phony theories and conspiracies……etc etc. Just the facts, ma’am (Joe Friday).
regards and goodnight
Wolf nailed it in this report. I was listening to a guest expert on cars sales a few nights ago on WGN radio and he sounded like he was quoting Wolf. He said even with the Covid surge, sales were still down this year, but vehicle production was down even more because of Covid, so don’t expect any end of the year super sales on the brand new 2020 leftover cars because there aren’t many of them.
Ever heard of the phrase “beat it like a rented mule”? Small update… “Beat it like a rental car”.
Except the stock market. We know if we let it normalize, the whole edifice might come down.
Also, please somebody don’t touch the French Laundry.
I disagree, the Fed doesn’t seem to want the bond market to normalize either.
Yes, lots of good quality used cars out there. We are driving two bought as lease turn-ins two years ago. Both were in great condition with less than 30 K miles on them.
I just read an article that Hyundai is strongly considering selling new cars with “option subscription” features next model year. Want heated seats in your new Santa Fe SUV ?……we will turn on the feature (via internet to your car’s hot spot) for $49.95 per month.
Boy, that will help sell new cars…..NOT
US consumers are bred/conditioned to buy the newest product & service that provides the illusion of “control”.
Case study: PTON
Come Summer of ’21, going to be a lot of those [barely used] bikes for sale.
Subscription not included.
Just more crap to break. It is amazing how much electronic stuff is jammed into vehicles. Even “fleet” vehicles, the supposedly stripped down versions to be bought in volume by businesses come loaded with electronic extras.
I have no faith any of the complex electronics will be functioning in 10 to 15 years. Just think about how many updates your computer will get in that time. Do you really want that same model for your car?
Today’s cars are over-engineered and gadgety monstrosities.
I’m old school and firmly believe in Murphy’s Law– anything that can go wrong (break down, fail) will go wrong. I even wish my 17 year old Honda had hand crank windows instead of standard power windows.
Heinz-a Murphy’s/Peter Principle modern-day engineering corollary: ‘…something that works really well demands that features be appended to it until it doesn’t…’.
may we all find a better day.
Amen!
…If it ain’t broke, fix it until it is….
Perhaps the additional electronics are simply and extension of the airbag syndrome. Quite a few repairable and serviceable vehicles are being “totaled” because of the cost of multiple airbag replacement.
You’re pretty close, LH. Modern frame-less cars have “crumple-zones” designed to absorb impact energy rather than the occupants who have even higher repair bills. Once any of these zones are deformed the car is written-off and the title is rebranded.
So you are telling me I can buy a base model car and hack the stereo to turn on all the upgrades? Best deal ever!
Just goes to show how much all those upgrades really cost.
Wonder where they got the idea to unlock ability the car already has for extra cash?
They put a lock on the ignition, if you don’t make the payments, the car won’t go.
BMW has talked about this for their cars. Tesla did it on a resale saying the new owner did not pay for the installed feature the other owner paid for. Slime balls…..
Will see what is available & price late winter of 2021 for
1ton work trucks. I need to add another one to the business.
May go gas this time v.s. diesel. Will need to sit back and see
what the greens will do with the energy sector.
May have to go amish & use some true horse power.
Not as much of a joke as you might think. The Amish are consistently profitable. Soy/corn industrial giga farms need a burgeoning series of welfare bailouts just to keep planting.
Read more if you wish. https://smallfarmersjournal.com/
The editor, Lynn Miller, got started because he couldn’t afford a tractor. Turned out to be a good thing.
Work with the amish all the time.
Have met very few….ok ….no English
who can live that life style for more than a few years.
I’m to old to start the life style.
Only 2 kids who are grown and gone.
Gotta have at least 5 laborers/kids.
Can you imagine the average English kid having to do physical work and no electricity. Would make a great south park episode….if they have not already done it.
tom20:
Don’t forget to “Scoop the Poop!”
Do I have to use a baggie as well?
Love your stuff.
Wasn’t the cash for clunkers program in 2009 aimed at getting vehicles low mpg off the road? I remember having the worst vehicle on the list… V8 grand Cherokee limited, it ran great but got about 13 mpg
It was aimed at stimulating new car sales because the automakers and component makers had collapsed. That $4,000 (?) was a big incentive. You had to go to a dealer, and it was only for trade-ins. You couldn’t just SELL them your clunker, you had to trade it in for a new car. And it was enveloped in a green wrapper: getting the oldest dirtiest cars off the road. But no one apparently asked who would otherwise be buying those cars. Lots of perfectly good Ford sedans got pulled. I remember a Ford dealer friend of mine musing about that… he wasn’t unhappy because they were making deals, but he thought it was crazy to purposefully destroy an engine of a car that ran just fine and then scrap the car.
Fear factor alive & well.
Local repair shops have work coming out the wazoo. [wasn’t “wazoo” a tagline for E-trade in dotbomb time-frame?]
Customers are fixing cars that, according to one shop owner, should have be sent to the “crusher” instead. Independent service shops & technicians are having a great year.
Replacement parts supplies becoming tenuous as mfg’s [hint: Asia/E. Europe & Russia] reduced production in response to Covid.
Lead & Lag (or is it Feast & Famine?)….same as it ever was.
I have to think the suspension of reality in the auto market simply reflected the tsunami of government money printing.
I got lucky with this market. I bought a 2018 Nissan Titan from a Ford dealer in January 2020 for 25K and traded it in on a new Equinox with that dealer paying 29K. I made a thousand clear after taxes, title, etc, and I will only pay the difference in taxes on the trade in and sale price in Arizona. I’m retired from GM with GMS pricing so my only bargaining chip was the Nissan, work well for me.
Panamabob:
You were clearly surfing the wave correctly.
Wes, just lucky in my timing, I decided to buy a toy, Honda 1000X side by side for desert trails as the Nissan was too big for some adventures.
The only unlucky part is your having to own an Equinox. ;-)
We also bought a very low mileage Mazda for a very reasonable price. As we get 10+ years out of every car we buy, this makes it a useful investment when the market is working a bit in our favor.
Bought an electric bike for $1,500. Makes 12-mile round trip to grocery store easy, like a slow 20mph moped. I’m 72 and weigh 250. No registration fees, no license required, no insurance, not even a helmet requirement. Tax man and “Big Mother” regulators must be furiously trying to catch up.
I think you’re right. Sooner or later “they” are going to class those as motorcycles. If an electric car is a car, then a two wheeled vehicle with a motor is a motorcycle. My neighbors have them, and the new ones easy do 30+ mph. Think of the tax revenue, mandatory training, safety equipment, etc. if/when that happens.
street legal in USofA is 28 mph while peddling and 20 by throttle only.
There are off road models that can go 50-60, but not street legal.
Slower limits and no throttle in most of EU.
Lots of fun and good utility for short runs as DB noted.
And, of course, nobody ever rode an off road bike on the streets.
Federal law is always about a decade behind technology, but you can see this coming.
Golf carts have been popular in retirement communities for 50+ years now.
Trying to visualize this, no insurance, no helmet, (case of beer on the handlebars?). Somebody is trying to catch up to you.
Meanwhile, a lot of computer parts are now well above MSRP. Both new and used. It seems like a perfect storm of delayed and still disrupted production in China, scalpers buying all stock and reselling at higher prices, plus the usual Xmass price sales, I mean hikes. Used high end graphics cards and MBs, CPUs are sometimes selling for more than their new prices.
I guess I’m waiting to rebuild..
If China has controlled the virus then why would their factories be slow in turning out products? This is even after a delayed release on some new parts.
You forgot to mention bitcoin hype driving up the price of high end video cards again. This is a miserable time to be into computer tech. I wanted to build a second gaming PC so that my son and I could play certain games together but I have to hold off until at least next year. First world problems …
Yes, that too. Glad I got a good used one when bitcoin fell last year or this past spring. Well, next year isn’t that far away. IDK, Yeah, if I were your son I might be much happier with an IOU for Xmass than a compromise of hardware on Xmass day.
BTW, the used GC I got last year was from a bitcoin miner on ebay. No one wants the used miners’ cards for obvious reasons. But it works perfectly fine for a fraction of the price. By the time it dies I’ll be wanting something else anyway. I just looked for a person selling them rather than a re-sale business and someone who had maintained and tested the cards before selling them.
It looked like lumber prices was receding into Nov/Dec like with used cars, but it’s back up to silly August levels. Flyover used to worry about Middle Eastern and African refugees, now they’re gonna get priced out by SF/NYC refugees.
That doesn’t seem to make sense to me. How much construction happens in winter months? I could understand if it was tarps and drywall.
They’re probably anticipating more mill closures which is a big reason for the last spike.
Wolf, Wall Street on Parade is claiming that the $0 repo loan number on the Fed website is a lie, and that the Fed simply stopped reporting the ongoing numbers. Do you have any thoughts on the truth/significance of this? Thank you!
The people at Wall Street on Parade are clueless about repos, have been clueless about repos from day one, have no idea how repos work, and have gotten the whole repo thing totally wrong from day one. They’re just making up crap to get clicks. They can do whatever they want, it’s their right and their site, but I won’t waste my time with their BS.
Wholesale and retail prices of used and new cars will be determined by the DOW ending triangle.
If the automakers and dealers could find a way to keep prices high using artificial scarcity methods, they would. But the ocean of lease turn ins and rental car inventory clearance undermines that. If only the same thing would have happened to housing!
Automakers have less interest in high retail prices than a dealer. Manufacturers make money on wholesale sales to dealers and plant productivity. High prices sometimes come with the need to provide incentives – which are direct hits to the profit of the vehicle they produced.
The one caveat is that a highly optioned car doesn’t cost much more to produce than a lower trim – but the profit differential is high. Leather seats and other non-essential gizmos add to the MSRP, but the cost to install them isn’t huge by comparison to the profit potential. I recall, from my automotive days, the manufacturing arm would come to us and ask us to not feature the lower optioned vehicles in our advertising/promotions because it affected plant profitability if the demand for lower option car increased and affected the product balance – which is where the manufacturer makes the bulk of their money. Production slowdowns are the death knell…. unless there’s enough vehicles in operation to support their replacement parts business – but that will wane as sales slow down and negatively impact their UIO.
So, in a nutshell… scarcity helps the dealer bottom line, but hurts the manufacturer’s.
Lease returns aren’t as lucrative as one might think. There’s a loaded gun pointed at the manufacturer’s captive finance company that could go off if their residual value assumptions are wrong at lease maturity. If the car is worth less than the residual value, they take a loss. Add to that the transportation costs from the dealer to the auction, on/off load surveys at the auctions, auction fees, storage, auction incentives to dealers to buy them, transportation incentives to reduce the cost of delivery to the dealer, hidden damage…. In my last home, we had a website that allowed dealers to surf lease turn ins at other dealerships and bid against each other. The costs there were far less – even with “free” transportation – than running them through a Manheim auction.
The automotive business is very complex and has a lot of moving parts. It’s not, as many people assume, a simple business.
As the old saying goes: Do you know how to make a million in the automobile business? Start with $10M and buy a dealership.
El,
I thought there is some type of residual insurance the finance companies (captive or otherwise) have on the car. I am also under the impression that when a car lease ends and it is turned into the dealer where it was originally acquired, and the lease was done through the captive finance arm of the manufacturer, the dealer can buy it at residual value. At least that is what I understand how things work for Honda and their captive finance arm. The best off lease cars are bought by the dealer who accepts them from the lessee upon lease end. The junk goes to auction.
@El Katz-
>Lease returns aren’t as lucrative as one might think. There’s
>a loaded gun pointed at the manufacturer’s captive finance
>company that could go off if their residual value assumptions
>are wrong at lease maturity. If the car is worth less than the
>residual value, they take a loss.
That’s why the fed.gov gravy arrives in the form of subprime credit, which keeps those residual values high. The lessee gets a new car, the subprime borrower gets a car that will pass smog and the taxpayers foot the bill.
Similar parable (‘how to…’) regarding aviation, racing.
Once heard (from owner of twelve stores) that there’s
only two kinds of dealers that “make it” (success).
You’re either a 1)”car person” or 2)”people person”.
Ymmv.
Wolf, looking at the comments from many (like me) who do not need all the electronic gadgetry on vehicles, why wouldn’t an auto maker see this market potential for “stripped down” vehicles? I wouldn’t even mind “spooning” a window down.
Stripped cars make no profit for the manufacturer. Many have tried to build a “base” car and reduce the sticker price. Those languished on the lot and usually were the last to leave. For every person that wants a crank window car, there’s 100,000 that don’t.
I view it as demand that got pulled forward. It sets up for deflation in the automotive market for 2021 which it appears has already started. All this liquidity created to stimulate inflationary forces and it may be for nothing other than stock markets at the end of the day, which may end up collapsing as well. So many industries will be wondering what happened. QE does nothing for a health care or socioeconomic problem, it only eases financial problems.
Demand has been pulled ahead for years. That’s why the manufacturers can’t stop the incentive merry-go-round. The minute they do, volume drops like a pregnant pole vaulter.
Where the heck is Van_down_by_the_river?
What I don’t understand is how is Hertz selling their cars? Wholesale? Their car sales site is still down.
Hertz, like other rental car companies, has two groups of cars, “at-risk” cars and program cars. The at-risk units are the ones it needs to sell. The program units go back to the automaker at the end of the service at predetermined rates, and the risk is with the automakers that end up having to sell those units at auction.
Normally, Hertz, like other rental car companies, has several ways of selling its at-risk units:
1. at its own retail dealerships around the country;
2. wholesale to other used-vehicle dealers, such as CarMax;
3. what’s left over, what no one wants, it sells at auction.
Hertz is still in bankruptcy, and these cars are assets that essentially belong to the creditors. So there are strict limits on what it can sell and how. In late July, it received permission to take cars to the auction. But yes, its main corporate retail site it down. But other “Hertz Car Sales” sites are open… not sure if they’re owned by Hertz, franchises, or what.
How many college debt folks, 60% of which are actually “well off” making more than $75,000, will switch from paying their college loans to paying a vehicle loan, “IF” $50k of loans get “vanquished”?
2021 could be the best new vehicle sales recession ever! God bless America? More like God bless the Fed…
Per NYT:
…more than 70 percent of currently unemployed workers do not have a bachelor’s degree, and 43 percent did not attend college at all…
…the Brookings Institution found that almost 60 percent of America’s educational debt is owed by households in the nation’s top 40 percent of earners, with an annual income of $74,000 or more.
4 members of the squad, sheep squad of course, are going to get 200K in student loan debt wiped out
see the incentive now…..
My local used car lot has cut down on inventory, they have more cars, and fewer trucks, their lot was almost all trucks/SUVs when business was good. I see fewer private cars parked, which are for sale. In a recession people try to raise cash, but nobody is calling it that. Insurance and registration fees continue, so no benefit to having a idle car on the premises. Most drivers don’t believe this will last.
$1 trillion of bonds have yields turned negative this week so 27% of the world’s investment-grade debt is now sub-zero according to Bloomberg.
So when can us plebs get our negative rate auto loans?
Best Recession EVER!
Yort,
The companies that issued those bonds some time ago still have to pay the coupon interest every six months. But the people that bought those bonds and that will be getting those coupons paid such a high premium above face value that their yield to maturity has turned negative — meaning they make interest income from the coupons, but when the bond matures and pays face value, which is lower than what these people paid for the bonds, they will have a capital loss that exceeds that interest income.
In other words, no one is getting “negative rate” loans here. But some folks speculated that yields would drop even further and that they can then sell the bonds at an even higher premium to an even greater fool, and thus make a capital gain.
I wonder of there will be a demand for auto mechanics to dismantle all of the electronic crap that comes with the new cars. I don’t need or want any of it. I certainly don’t want to insure it with some some scam repair insurance. I’m holding on to my low mileage 2000 Corolla as long as possible. The repair costs have been minimal so far. It’s now considered a historical vehicle(over 20 years) and doesn’t require any vehicle inspections
1) Hertz belong to the BK estate.
2) Hertz is still active in the rental business, charging normal prices & penalties. No discounts from the estate lawyers.
3) Part of their memo business that have to go back to the mfg after the memo expiration date, is overextended, still on memo in Hertz estate, saving the mfg the headaches of dumping those pcs themselves.
3) Nobody wants “bad items”. Even for the auction houses they are a waste
of time. No demand for “bad items” even at liquidation prices. Bad is bad.
The estate is stuck with them.
High student debt is owe by parent, paying for 1 to 4 children high education, in prestigious $75/y colleges, law and medical schools…
The debt portion of the students themselves is relatively low.
I am sure the Repo Man is quite busy. After foreclosure freeze is ended things will get ugly until the Fed steps in to buy houses and cars.
@DanS86-
> “…until the Fed steps in to buy houses and cars.”
I wonder if this is possible given the fifty state’s covid-19 related medical expenses and the loss of shutdown related tax revenue?