BLACK BOOK Market Insights – 5/10/2022

Wholesale Prices, Week Ending May 7th

The market continues to follow a new path of seasonality with the overall market having another week of increases last week. Traditionally, by this time of year we would have started to see the spring market bump reverse and turn cars back into depreciating assets, but not this year, as cars continue to rise. Last week, the majority of the overall Car segment reported an increase.

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

Car segments                      +0.31%           +0.38%            -0.14%

Truck & SUV segments     +0.05%           -0.02%             -0.06%

Market                                +0.13%           +0.11%            -0.09%

Car Segments

• On a volume-weighted basis, the overall Car segment increased +0.31%. For reference, the previous week, cars increased by +0.38%.

• Seven of the nine Car segments increased last week.

• Sub-Compact Cars (+0.71%) have been increasing for the past eight weeks, but last week’s increase was the largest seen since before Thanksgiving last year.

• The Sporty Car (+0.23%) segment gained additional strength this past week, after the prior week’s minimal increase of +0.06%.

• Premium Sporty (-0.29%) and Near Luxury (-0.01%) were the only Car segments to report declines.

Truck / SUV Segments

• The volume-weighted, overall Truck segment increased +0.05%, compared to the prior week’s decrease of -0.02%.

•  Seven out of the thirteen Truck segments reported increases.

• Compact Van (+0.81%) and Minivan (+0.72%) segments were the largest gainers last week. Surprisingly, the Full-Size Vans slowed down from the record streak of increases, but only by a small -0.01% decline. This negative adjustment is not expected to continue as a trend for the segment due to supply remaining low.

• Full-Size Trucks have slowed their pace of declines in recent weeks, with last week’s decline being -0.02%, after the previous week’s decline of -0.13%.

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 after February’s declines.

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

• Alfa Romeo will launch their first Sub-Compact SUV, the 2023 Alfa Romeo Tonale, in the U.S. in the first quarter of 2023; the small crossover will be offered with a turbocharged 2.0-liter I-4 gasoline engine, or as a plug-in hybrid variant that features a 15.5-kWh battery capable of 30 miles of all EV range.

• Mercedes’ Drive Pilot is the world’s first fully certified Level 3 autonomous driving system and is now available in Germany on S-Class and EQS models.

• Stellantis announced that they have no interest in separating their EV offerings into a separate business unit from their ICE products.

• Fisker has announced their 3rd EV: the long-range sporty grand tourer, Project Ronin, which is expected to debut in full in August 2023 and follows the Ocean all-electric SUV and compact Pear EV.

• Mini confirmed that certain offerings will be stopped, temporarily, including all manual transmissions due to supply chain issues.

• Kia announced that the EV9 – an all-electric three-row Telluride-sized, 300-mile range SUV – will start production in the 2nd half of this year.

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 increased slightly this week, and is now above 1.00, indicating that the used retail listing volume is above where CY22 started. The CY22 trend line has been closely following the CY20 trend line but is now interacting with the CY19 line. Some have speculated that there may be a spring market bounce since income tax returns have been delayed.

The Used Retail Days-to-Turn Estimate remains somewhat stagnant, sitting just below 36 days.

Wholesale

Historically, the first week of May is an exciting time for new model year launches and an increase of lease returns in the auction lanes. This year, like the past 2 years, has been plagued with microchip shortages and supply chain issues causing a significant reduction in both new inventory production and used lease and fleet returns in the wholesale market. After being mostly absent over the last 2 years, repossessions are starting to show up more often in lane. Smaller independent dealers and rental companies continue to dominate the lanes with larger independent dealers jumping in when lower mile or cleaner vehicles come through. Franchise dealers are still around too, making appearances in lane for desirable models, but seemingly more prudent than in previous months. A new trend that has been recently noticed, is the flipping of recently launched extremely low mileage EV models, some selling for a few thousand over original MSRP, while others bring more than double; this hasn’t been in an isolated area either – the coveted electric vehicles are popping up all over the country.

The Estimated Average Weekly Sales Rate continues to increase and now is at 71%. This is the first time the estimated average weekly sales rate has gone above 70% since November of 2021. This increase loosely resembles the CY21 Spring increases.