ATLANTA – A 3 percent year-over-year drop in wholesale prices in the second quarter did little to weaken the already strong used-vehicle market, Manheim reported yesterday. The firm described the drop in wholesale prices as consistent with prior expectations. It also said the drop brought wholesale values in better alignment with retail new- and used-vehicle prices.

“Wholesale vehicle prices are returning to a more normal level after having been elevated the past several years due to low supply and high demand,” said Tom Webb, Manheim’s chief economist. “Moderating pricing is being driven, in part, by strong sales of new retail vehicles. As sales of new vehicles increase, more used vehicles are coming into the wholesale market through trade-ins and lease returns. Wholesale vehicle pricing should continue to moderate in the second half of 2013, though the overall strength of the market should be unaffected.”

Strength in the retail market is evidenced by the same-store used vehicle unit volumes for the seven publicly traded vehicle dealer groups, which have seen year-over-year growth for the past 16 consecutive quarters.

Employment growth is a major factor driving sales, as consumers have greater need for personal transportation and have the means to pay for it. Some other emerging trends in the used-car market based on the first-half results for 2013 include:

• Pickup trucks continued to outperform all other used-vehicle segments during the first half of 2013. Wholesale prices increased 3.6 percent on a year-over-year basis due to increased demand from the improving housing industry, combined with limited supplies in the wholesale market, especially for units with less than 100,000 miles.

• Midsize and compact cars experienced the largest drop in prices year over year at 4.0 percent and 5.4 percent, respectively, due to the attractive offerings, pricing and financing options available on midsize and compact cars in the new vehicle market. This hurt the overall resale performance of some commercial fleet managers whose primary price range is $11,000 to $13,000, but many makes and models popular with commercial fleets continued to perform very well in the auction market.

• Rental risk prices were strong in June. Prices for rental risk units sold at auction, unadjusted for market class and mileage, increased 4.8 percent in June compared to a year ago, though volumes were down for the month. Rental risk prices in June were basically unchanged from both May and a year ago, after adjusting for broad shifts in market classes and mileage. 

• “Buy Here Pay Here” is showing growth in lower priced cars. Lower-priced cars also are in demand, boosted by increased employment as more people are earning the income necessary for a vehicle purchase. Dealers are creating additional demand by offering more flexible financing to consumers at the low end of the market due to enhanced credit availability from lenders.

“The subprime and leasing markets performed very well in the first half of 2013,” Webb said. “The strong performance of buy-here, pay-here dealers has attracted competition to the market, among both other used-vehicle dealers as well as from established lenders that until recently had avoided this higher risk category. Our outlook for this industry segment is positive for the next 12 to 24 months.”