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March 2017 Kontos Kommentary

Current Used Vehicle Market Conditions and Outlook


Summary

The tale of two markets resumed in March, as wholesale prices were below year-ago levels for cars and above prior year for trucks. Nevertheless, both groups showed price increases versus February’s unseasonably soft results, as retail sales and wholesale activity showed signs of the traditional spring/tax season market typical for used vehicles.

In analyzing the current bifurcated market, it seems timely to revisit a study begun during the first episode of $4.00 gas in 2008, when truck prices softened dramatically and car prices rose. At that time, the price gap between fullsize SUVs and compact cars had fallen from close to $13,000 in January of 2000, when SUVs were all the rage, to $2,162 in June of 2008, when gas prices hit $4.00 a gallon. In other words, dealers were paying high prices for small cars and low prices for big SUVs at that time, narrowing the price gap between the two. That turned out to be the all-time low for this price gap, which gradually rose to $8,293 by November 2016, as gas prices have fallen and the popularity of SUVs has recovered. Per our March data, this gap has dropped to $6,675, perhaps indicating that SUV prices are moderating and compact car prices are recovering. We will monitor this going forward.


Details

According to ADESA Analytical Services’ monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class1, wholesale used vehicle prices in March averaged $10,904 -- up 2.0% compared to February and up 1.0% relative to March 2016. All but one model class segment (compact pickups) showed month-over-month increases. (Note: the year-over-year growth in minivan prices is exaggerated by newer models as discussed in January’s report.).

Average wholesale prices for used vehicles remarketed by manufacturers were up 1.1% month-over-month but down 1.7% year-over-year. Prices for fleet/lease consignors were up 3.8% sequentially and up 0.8% annually. Average prices for dealer consignors were up 2.7% versus February and up 1.3% relative to March 2016.

Breaking the data down by age shows that prices were down 2.5% year-over-year for current and one-model-year-old units (typically off-rental units) and down 2.6% for three-model-year-old units (a good proxy for off-lease units)..

Based on NADA data, retail used vehicle sales by franchised and independent dealers were up 9.3% month-over-month, and up 1.6% year-over-year. March CPO sales were up 15.0% month-over-month, although they were down 0.3% year-over-year from last March’s all-time record levels, according to figures from Autodata.

1 The analysis is based on over six million annual sales transactions from over 150 of the largest U.S. wholesale auto auctions, including those of ADESA as well as other auction companies. ADESA Analytical Services segregates these transactions to study trends by vehicle model class.

The views and analysis provided herein relate to the vehicle remarketing industry as a whole and may not relate directly to KAR Auction Services, Inc. The views and analysis are not the views of KAR Auction Services, its management or its subsidiaries; and their accuracy is not warranted. The statements contained in this report and statements that the company may make orally in connection with this report that are not historical facts are forward-looking statements. Words such as “should,” “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “bode”, “promises”, “likely to” and similar expressions identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected, expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include those matters disclosed in the company’s Securities and Exchange Commission filings. The company does not undertake any obligation to update any forward-looking statements.

Wholesale Price Data by Model Class Segment - March 2017
Wholesale Price Data by Model Class Segment History 2015-032017
Wholesale Price Data by Model Class Segment - Full History 2011 - 012016
ADESA Analytical Services Selected Model Class Segments
Wholesale Price Data by Model Class Segment - Full History 2000 - June 2012

Kontos Kommentary - March 2017