Black Book: Market Insights

Black Book Market Insights – 3/29/2022

Wholesale Prices, Week Ending March 26th

A continued lack of new inventory for rental companies, high fuel prices, and tax season are all coming together to change the market declines we’ve been experiencing in recent weeks. This past week, some popular tax season vehicles and fuel-efficient segments reported increases.

                                       This Week   Last Week    2017-2019 Average (Same Week)

Car segments                      -0.07%      -0.52%       +0.16%

Truck & SUV segments     -0.39%      -0.51%       -0.10%

Market                                -0.28%      -0.51%       +0.01%

Car Segments

• On a volume-weighted basis, the overall Car segment decreased -0.07%. For reference, the previous week, cars decreased by -0.52%.
• Three of the nine Car segments increased last week.
• Sub-Compact Cars increased for a second week in a row, up 0.10% last week, after the previous week’s increase of 0.07%.
• Compact Cars moved into positive territory last week with an increase of 0.33%.
• Premium Sporty Car reported the largest Car segment decline last week, at -0.48% and Full-Size Cars (-0.44%) had the second largest decline.

Truck / SUV Segments

• The volume-weighted, overall Truck segment decreased -0.39%, compared to the prior week’s decrease of -0.51%.
• Ten out of the thirteen Truck segments reported declines.
• Compact Vans (+0.34%) returned to increases last week, after seven weeks of declining values.
• The Small Pickup segment also returned to positive territory last week, with a gain of +0.08% after 10 consecutive weeks of declines.
• Compact Luxury Crossovers (-0.73%) and Mid-Size Crossovers (-0.76%) reported the largest declines last week.

Weekly Wholesale Index

Calendar year 2020 and 2021 ended with used wholesale prices at elevated levels. With economic patterns (including the automotive market) driven by the pandemic, normal seasonal patterns (e.g., 2019 calendar year) in the wholesale market were not observed for most of the last 2 years. We saw a similar picture in 2009, at the end of the Great Recession. Calendar year 2021 did not have typical seasonality patterns as the market had rapid increases in wholesale values for the majority of the year. The Wholesale Weekly Price Index reached the highest point of the year at the end of December, reporting over 1.51 points. Now, in calendar year 2022, the index has been reverted back to the 1.00 mark and overall wholesale prices remained relatively stable in the month of January (green line). As we moved into March, the Wholesale Weekly Price Index continued to decline and is now just below the 2019 trend line, around 0.97.

The graph below looks at trends in wholesale prices of 2-6-year-old vehicles, indexed to the first week of the year. The index is computed keeping the average age of the mix constant to identify market movements.

Retail (Used and New) Insights

• Nissan announced plans to continue producing hybrid vehicles, even as other OEMs make plans to be all-electric; Nissan is launching 3 hybrid crossovers this year in different markets – the Qashqai compact e-Power, the Juke hybrid and the X-trail e-Power.
• General Motors advised they will halt production at its full-size pickup plant in Indiana over the next two weeks because of the global microchip shortage; affected models include Chevy Silverado and GMC Sierra.
• Volkswagen’s launch of its ID.5 battery-electric car has been delayed because of disruptions in the supply of wire harnesses from Ukraine.
• Ferrari teases a new crossover; the Purosangue is due to be unveiled by the end of this year with deliveries starting in 2023.
• Stellantis and joint venture partner, LG Energy Solution Ltd., committed $4.1B to build Canada’s first large-scale EV battery plant in Ontario.
• Maserati is set to challenge the Porsche Macan and BMW X3 with the Grecale Mid-size SUV, the brand’s second SUV after the larger Levante. Expected in the US by the end of 2022, it will be available with a regular gasoline engine and two mild-hybrid versions; a full-electric version will launch in 2023.

Used Retail Prices

Used Retail Prices are more accessible than in years past, due to the proliferation of ‘no-haggle pricing’ for used-vehicle retailing. Transparent pricing upfront makes the car buying process more enjoyable for customers and allows Black Book to accurately measure retail market trends.

At the on-set of the pandemic, in CY2020, used retail prices increased slightly, following typical seasonal patterns, and then began dropping in April, finally hitting a low point in the late spring months. By late summer of CY2020, Used Retail Prices increased as supply of new vehicle inventory started to become scarce, but retail demand slowed down at the end of CY2020, resulting in declining retail asking prices for the last several weeks of the year. When CY2021 kicked off, demand rebounded while retail prices lagged slightly behind wholesale prices; March of 2021 started the dramatic increases in Used Retail Prices, fueled by stimulus payments, tax season, and shortages of new inventory. During the third quarter, retail prices continued to rise at a slower rate but soon picked up the pace once again to start the fourth quarter. In Q4, prices on retail listings steadily increased week after week. As CY2021 came to an end, the retail listing price index closed 36% above where the year began.

So far in 2022, the Retail Listings Price Index has remained relatively unchanged (green curve on the graph below), the Index sits around 0.99, indicating a very slight decrease in retail pricing. Typically, there is a lag between changes in wholesale prices and retail prices.

This analysis is based on approximately two million vehicles listed for sale on U.S. dealer lots. The graph below looks at 2-6-year-old vehicles. The Index is computed keeping the average age of the mix constant to identify market movements.

Inventory

Used Retail

Used Retail Listing Volume continues to drop and now sits around 0.98. The Index for CY22 resembles pre-pandemic trends and is an indicator that there may be some seasonal normality this year.

The Used Retail Days-to-Turn Estimate also dropped this week, and is now just above 40 days, which is slightly lower than typically seen in March of previous years.

Wholesale

While there are new stories of supply chain disruptions popping up daily, it is evident that some new inventory is hitting franchise dealers’ lots as more off-lease vehicles make their way to the auction lanes. OEMs seem to be anticipating the arrival of new model year launches as announcements of corporate use and company cars have become more popular. Recent increased competition among franchise dealers, independent dealers, and rental companies has wholesale values in some segments on the upswing again, after several weeks of declines, which is a positive indicator for a somewhat traditional spring market. The vehicles coming through the lanes also appear to be cleaner overall than we have become accustomed to seeing, with less announcements of structural damage, open recalls, engine sludge, etc. While the future is unknown, for now, clean used vehicles and the dealers that can acquire them are a hot commodity.

The Estimated Average Weekly Sales Rate continues to ascend – this week it is now at 67%, which is very similar to the trend seen in CY21. An increased Estimated Average Weekly Sales Rate at this time of year is another positive indicator for a spring market.