ATLANTA — Wholesale used-vehicle prices (on a mix-, mileage-, and seasonally-adjusted basis) fell by 0.2% in February, Manheim reported this week. However, given last February’s sharp dip in pricing, the Manheim Index shows a year-over-year gain of 1.1%, putting it at 124.6 for the month of February.

“Although wholesale prices rose in only one month out of the last seven, ‘stability’ remains the watchword for used-vehicle values given that all the declines were small,” reads the report, in part. “In the face of heavy new-vehicle inventory and incentives, the stability of used-vehicle values is a credit to the retail market that continues to provide dealers the ability to quickly retail wholesale acquisitions at reasonable grosses.”

The crazy tax refund season that was expected to impact dealers never materialize, the report noted. Because of a law requiring tax refunds involving the Earned Income Tax Credit or the Additional Child Tax Credit to be held until Feb. 15, year-to-date tax refunds through Feb. 10 were down 69%, or $65 billion, from a year ago.

“But then the flood gates opened, and a record $74 billion in tax refunds was distributed during the single week ending Feb. 17,” the report reads, in part. “As of Feb. 24, year-to-date tax refunds were down 10%, or $15 billion. The usual flow of tax refund monies this year appear to have had less of an effect on dealers than one might expect, especially since other retailers (most notably TV and appliance stores) did notice a significant impact.”

Looking at used-vehicle retail sales, franchised and independent dealers started 2017 on a strong note, with January gains in retail used unit deliveries of 4% and 8%, respectively, according to the National Automobile Dealers Association. “Channel checks suggest that February increases were also achieved, although probably more modest ones,” the report notes.

Certified pre-owned sales (CPO) in February were basically flat after posting only a 0.8% gain in January. “The fact that CPO car sales were down 5% in February while CPO truck sales were up 5% supports our theory that CPO sales growth is possibly being restrained by small potential gross profit lifts in certain segments,” the report states, in part. “The theory is further supported by the 10% decline in domestic brand CPO sales, a 1% increase for mid-line imports, and a 15% increase for luxury units.”

Looking at new-vehicle sales, new cars and light-duty trucks sold at a seasonally adjusted annual rate (SAAR) of 17.5 million in February, which was right in line with the full-year pace of 2015 and 2016, according to Manheim’s report.

“Given that dealers started the month with more than four million units sitting on their lots, it was certain that metal would be moved,” the report states. “Incentives helped in the process. Naturally, however, this created some downward pressure on residuals.

“In fact, studies generally show that inventory level has a stronger statistical relationship to residuals than does incentive spend,” the report states. “The two are, of course, first cousins; but inventory level has the benefit of being a more precise measurement as well as the one that can capture the impact of a shifting dealer mindset and the willingness to forgo gross to make a sale.”

The report adds that despite the industry making progress in getting inventory levels back in line in February, there is more work to be done. “As such, the pressure on used-vehicle values will remain,” the report notes.

Manheim also looked at pricing trends by market class. It noted that although it remains the case that pricing for trucks, CUVs, and vans remains up year over year while cars are down, the weakest of the car segments (compacts) has actually tracked the overall market the past three months. “It is risky to say that compacts reached their bottom because there have been so many false bottoms over the past couple of years, but there are promising signs,” reads the report, in part.

“On a nonseasonally adjusted basis, sports cars were the only segment that was up, but the February lift was much less than normally occurs. As such, the seasonally adjusted price for sports cars in February was down more than any other major segment. This might have been one area where reduced tax refunds did have an impact.”