BLACK BOOK – Here is a quick recap of industry related headlines over the last week:

Wholesale Prices, Week Ending August 7th

July sales finished strong, but available new and used inventory remains limited. This is continuing to prove challenging for dealers to keep up the pace of business. With many new car dealers facing days supply at record lows, they are being forced to look for the few used vehicles left in the market that are viable substitutes for their lack of new vehicles. The declines in pricing that are being seen in the market are for average vehicles with average to high mileage.

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

Car segments                           -0.78%        -0.68%              -0.31%

Truck & SUV segments          -0.54%        -0.47%               -0.20%

Market                                     -0.62%        -0.54%            -0.25%

Car Segments

• On a volume-weighted basis, the overall Car segment decreased -0.78%. For reference, the previous week decreased by –0.68%.

• Sub-Compact Cars ended a 25-week streak of increases, with a decline of -0.18%.

• Mid-Size and Compact Cars had the steepest declines at –1.35% and -1.30%, respectively

• Premium Sporty Cars reported the lowest declines at -0.06%.

Truck / SUV Segments

• The volume-weighted overall Truck segment declined -0.54%, an increase in depreciation from previous week’s decline of -0.47%.

• Full-Size Vans were the only segment to report gains this past week, with an increase of +0.17%.

• The Compact Crossover segment had the largest Truck segment decline at -1.01%, while the more spacious Mid-Size (-0.14%) and Full-Size Crossovers (-0.005%) reported only minimal declines.

Weekly Wholesale Index

Calendar year 2020 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 year. We saw a similar picture in 2009, at the end of the Great Recession. Calendar year 2021 has not had typical seasonality patterns as the market has had rapid increases in wholesale values for the majority of the year. After reaching record heights at the end of June, wholesale prices started to come down for the first time this year in July.

The graph below looks at trends in wholesale prices of 2-6-year-old vehicles, indexed to the first week of the year.

Black Books’ Seasonally Adjusted Monthly Retention Index – July

As wholesale prices started to decline in July, the seasonally adjusted Retention Index reversed the trend for the first time this year and decreased to 161.8 points, a 4.2 point (or 2.6%) decrease from June (166.0). The Index currently stands 28.4% above where it was the same time last year, during the recovery of the used market, after COVID-19 related closures in the Spring of 2020.

Retail (Used and New) Insights

• As COVID-19 cases are surging across the country, the industry is having to make some adjustments. The New York Auto Show has officially been cancelled for a second year in a row and US automakers announced the return of mask mandates in their manufacturing facilities, only months after they had officially removed the mandates.

• President Biden signed an executive order last week, setting a target of 50% of all new vehicle sales to be zero-emissions by 2030.

• July sales were strong for many OEMS, with Hyundai & Kia, Toyota, Mazda, and Volvo reporting large gains compared to 2020, but others like Ford reported declines as a result of the microchip shortage leaving their dealers with a short supply of available inventory on dealer lots.

Used Retail Prices

With the proliferation of ‘no-haggle pricing’ for used-vehicle retailing, asking prices accurately measure trends in the retail space. Retail demand slowed down at the end of last year, and thus resulted in declining retail asking prices for the last several weeks of 2020. As demand rebounded, retail prices have lagged slightly behind wholesale prices, but March had an accelerated growth in retail prices. In April and May, retail prices picked up speed as demand accelerated, fueled by stimulus payments, tax season, and shortages of new inventory. In June, retail prices continued to rise. After strong Spring and Summer months, retail listing prices have started to fall. Currently, retail prices are more than 24% above where we started the year.

This analysis is based on approximately two million vehicles listed for sale on US dealer lots. The graph below looks at 2-6-year-old vehicles.

Inventory

Used Retail

Current used retail listing volume is about 11% below the start of the year. As retail demand softened in the last several weeks (both for new and used vehicles), used inventory had remained relatively flat but is now starting to decrease again.

Days-to-turn for used retail listings have been increasing, as retail demand softened over the last few weeks. The days-to-turn now sits just below 34 days, which is still lower than what is typically expected in a normal year.

Wholesale

Floor pricing remains strong, but with availability of vehicles continuing to be a challenge, the sales rates this past week stabilized at 64%. However, conversion rates remain extremely strong for low mileage, newer used units.

Despite the limited inventory on dealer lots, dealer lanes continue to have higher volume at auction, while manufacturers’ remarketing lanes are offering less and less in open sales channels. Dealers have found creative ways to diversify their source of inventory.

ADESA announced a pilot program to test out the impact of physically running vehicles across the lanes. They have selected 11 different locations across the country as their sample set for the 90-day test.