BLACK BOOK – Wholesale Prices, Week Ending February 26th

Wholesale market declines continued last week, but the pace is starting to slow down. Despite the magnitude of declines reducing compared to recent weeks, the average rate of weekly declines remains much larger than is typically experienced this time of year.

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

Car segments                      -0.75%             -0.82%             -0.34%

Truck & SUV segments     -0.54%             -0.75%             -0.29%

Market                                -0.61%             -0.78%             -0.32%

Car Segments

• On a volume-weighted basis, the overall Car segment decreased -0.75%. For reference, the previous week, cars decreased by -0.82%.

• All nine Car segments declined last week.

• For a second consecutive week, Mid-Size Cars reported the largest decline in values, with a depreciation of -1.19% last week.

• Sporty Car (-1.04%) and Prestige Luxury Car (-0.95%) also had large declines, accelerating from the prior weeks’ declines of -0.88% and -0.76%, respectively.

• Sub-Compact Cars reported a minimal decline again, -0.11% compared to the prior week’s decline of -0.01%.

Truck / SUV Segments

• The volume-weighted, overall Truck segment decreased -0.54%, compared to the prior week’s decrease of -0.75%.

• Twelve out of the thirteen Truck segments reported declines.

• Full-Size Vans (+0.50%) reported another increase last week. This now marks fifty-eight weeks of appreciation.

• Sub-Compact Luxury Crossovers had the largest decline of the Truck segments at -1.22%, compared to the previous week’s large decline of -0.94%.

• Compact (-1.00%) and Sub-Compact Crossovers (-0.87%) also reported large declines. Despite high fuel prices, consumers are still looking for larger SUVs and trucks.

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 have remained relatively stable in the month of January (green line). As we move into March, the Wholesale Weekly Price Index continues to decline and is now starting to resemble the 2019 trend line.

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

• It was announced last week, that Carvana has purchased ADESA’s 56 U.S. locations, brand name, ADESA.com U.S. marketplace, and approximately 4,500 employees, which was valued at $2.2B.

• Toyota announced that they will suspend their Japan-based factory operations – losing around 13,000 cars – after a company supplying plastic parts and electronic components was hit by a suspected cyberattack.

• Volvo Cars revealed that they would introduce five battery-electric vehicles including a large and a small crossover, a sedan, and two sporty wagon-like models plus redesigned versions of its S90 and XC90 plug-in hybrids as they move towards being an all-electric brand by 2030.

• The Porsche brand could make an initial public offering as soon as Q4 of 2022 per Antlitz, the CFO of parent Volkswagen Group.

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.

In the two months of 2022 so far, the Retail Listings Price Index remains relatively unchanged (green curve on the graph below). 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 returned to where CY2022 began, as indicated by the green line. After a slight increase and then subsequent decrease, we are essentially back where the calendar year started at the 1.00 mark.

Used Retail Days-to-Turn has dropped slightly and now sits around 42 days. Consumer demand remains down, but as wholesale values continue to fall and new inventory keeps popping up, the future outlook indicates some normal seasonality and seems promising.

Wholesale

Over the last few weeks, there have been more disruptions in new vehicle production and distribution, with VW’s cargo ship catching fire, impending sanctions, cyber-attacks, and the ongoing semiconductor chip shortage. At this time, it is not known how much these events and actions will affect new vehicle output, consumer sentiment, or wholesale channels. However, wholesale values are dropping, which should cause some movement with floor pricing, and hopefully, those lower wholesale prices will encourage both auction buyers and end-consumers to make a purchase. Mask mandates are waning while wholesale inventory piles up. As previously reported, competition in lanes has increased from winter months with large independents, smaller independents, franchise dealers, and rental companies all vying for desirable units. Damaged vehicles are still fairly common in lane, but the volume of repossessions continues to be noticeably low.

The Estimated Average Weekly Sales Rate has increased slightly to 62% this week. If there is to be a traditional spring / tax-season market, the Estimated Average Weekly Sales Rate should pick up over the next few weeks. At this point, auction buyers are still at the discretion of consumer demand and seller floor prices.