BLACK BOOK Market Insights – 4/5/2022

Wholesale Prices, Week Ending April 2nd

The rate of decline is slowing on 2-8-year-old vehicles, but the real headline of last week is the increase in the 8-16-year-old vehicles (+0.19%, see the second graph below). The spring/tax season market is usually strongest on cheaper/older vehicles and with wholesale values reporting a record 28.7% increase in 2021, dealers are having to look at even older model years to purchase in the “sweet spot” for pricing for their tax season shoppers.

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

Car segments                        -0.02%        -0.07%        +0.21%

Truck & SUV segments       -0.21%        -0.39%         -0.06%

Market                                  -0.15%        -0.28%         +0.06%

Car Segments

• On a volume-weighted basis, the overall Car segment decreased -0.02%. For reference, the previous week, cars decreased by -0.07%.

• Three of the nine Car segments increased last week.

• Sub-Compact Cars (+0.01%) increased for a third consecutive week.

• Compact Cars increased for a second week, with a gain of +0.30%, after the prior week’s increase of +0.33%.

• Near Luxury (-0.23%) and Luxury Car (-0.22%) had the largest declines last week, but both were less than the prior weeks declines of -0.39% and -0.33%, respectively.

Truck / SUV Segments

• The volume-weighted, overall Truck segment decreased -0.21%, compared to the prior week’s decrease of -0.39%.

• Eleven out of the thirteen Truck segments reported declines.

• Full-Size Vans continued their upward trend last week, with another gain of +0.25%, marking 62 weeks of increases.

• Compact Crossovers went positive last week, with an increase of +0.11%, after fifteen consecutive weeks of depreciation.

• The Full-Size Luxury Crossover/SUV (-0.81%) segment reported the largest decline last week.

• Despite high fuel costs, Sub-Compact Crossovers continue to decline, fifteen consecutive weeks so far.

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

• Toyota Motor Corp. is revving back into the hatchback market with a new all-wheel-drive GR Corolla developed by its in-house Gazoo Racing team and powered by a power-dense three-cylinder engine.

• Vietnamese automaker, VinFast, will build an electric vehicle assembly plant and a battery manufacturing facility in Chatham County, N.C, with an initial $2 billion investment. In just the past year, automakers and their battery suppliers have committed $13.5 billion to create EV battery plants in North America.

• American Honda Motor Co. is expanding its certified pre-owned program to include 10-year-old Honda and Acura vehicles.

• The next-generation Mercedes-Benz GLC mid-size crossover will arrive this autumn with three plug-in hybrid drivetrains – 2 gasoline,1 diesel.

• Swedish EV maker, Polestar, has inked a deal with Hertz to supply up to 65,000 battery-powered vehicles over five years globally.

• This week, Lotus took the wraps off its long-awaited electric SUV, the Lotus Eletre, revealing a model expected not only to bring the automaker into the mass-market EV age, but also into the SUV age. Chinese automaker, Nio, began deliveries of its sleek ET7 sedan in China with European deliveries expected later this year. The ET7 has a massive 100-kWh battery with a promised range of over 400 miles.

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 just above 0.95. 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 38 days.

Wholesale

Auction lanes continue to heat up this week – trends are emerging that have not been seen before. With so many newer used vehicles’ wholesale values inflated, the 8 to 16-year-old vehicles are taking the spotlight for this year’s spring / tax season market. In lane, larger independent dealers still seem to be targeting off-lease models (MY18-MY19) for their consumers while the newest used vehicles (MY20-MY22), especially those in cleaner conditions with lower mileage, are in bidding wars with rental companies and franchise dealerships. Rental companies are still having some difficulties acquiring inventory from manufacturers directly and have been extremely competitive in lane, further driving up prices; with Americans gearing up for summer travels while supply chain issues continue to disrupt inventory of parts and new vehicles, increased competition from rental companies is anticipated to continue through the fall. As new inventory sprinkles in from manufacturers, the sentiment in lane feels hopeful with sellers appreciative of the bidding activity and the buyers happy to have a few more choices.

The Estimated Average Weekly Sales Rate continues to ascend – this week it is now at 68%, which is very similar to the trend seen in CY21. An increased Estimated Average Weekly Sales Rate paired with a lower Used Retail Days-to-Turn Estimate at this time of year is a positive indicator for a spring market.