Even during tax refund season! Exactly what Americans need. But it’s not helpful for big fleets, such as Hertz.
By Wolf Richter for WOLF STREET.
Seasonally adjusted, prices of used vehicles that were sold at auctions across the US fell 2.3% in April from March, to $18,151, the lowest since April 2021, and down by $5,423 (-23%) from the peak in January 2022, according to today’s Used Vehicle Value Index by Manheim, the largest auto auction house in the US. The index is adjusted for changes in mix and mileage.
From February 2020 through the crazy peak in January 2022, auction prices had spiked by a mindboggling 64%, or by $9,252. The historic plunge so far has surrendered 59%, or $5,423, of that $9,252 spike (red in the chart below).
Not seasonally adjusted, the index dipped 0.6% in April from March, to $18,834, down by 18% from the peak. The plunge so far has surrendered nearly half of the pandemic spike (blue).
These auctions are where dealers buy to replenish their inventories. Supply to these auctions comes from rental fleets that sell some of the vehicles they pull out of service (usually 2.5-3.5 million vehicles per year), and it comes from finance companies that sell their lease returns and repos, from corporate and government fleets, etc.
Year-over-year, the index fell 14% in April. Prices fell in all major vehicle categories on a year-over-year basis, according to Manheim today:
- Luxury cars: -12.9%
- SUVs & crossovers: -14.6%
- Pickups: -15.2%
- Midsize cars: -16.8%
- EVs: -17.5%
- Compact cars: -17.6%.
Even during tax refund season. The big difference between the seasonally adjusted decline (-2.3%) and the not seasonally adjusted decline (-0.6%) is explained by tax-refund season, which lasts through April, and is usually very strong for used car prices, because tax refunds make great down-payments, and ever since there have been tax refunds, used-vehicle dealers have gotten their slice of the pie.
In the five years before the pandemic, the not-seasonally-adjusted index rose 1.5% on average in April from March, with no month showing a decline. But this year, it continued to drop in April (-0.6%), which caused the seasonally adjusted index to fall by 2.3%.
Despite retail sales that are up year-over-year. These price declines occurred even as retail sales of used vehicles in April were up 9% year-over-year, according to Cox Automotive, which owns Manheim.
And despite declining inventories. Used retail inventory dipped to 2.22 million vehicles on dealer lots at the beginning of April, according to the latest estimates from Cox Automotive, compared to a range of 2.8-3.0 million in 2019.
This inventory trend – inventories are adequate, but barely, and they’ve declined for months – sheds an interesting light on the historic plunge in prices. It’s not a supply glut that is driving down prices in this historic manner; it’s gravity (the Greek myth of Icarus comes to mind).
These price drops are exactly what Americans need, but… That ridiculous price spike during the pandemic ate a huge hole into household budgets, not only via purchase prices, but also in auto insurance premiums; the CPI for auto insurance has been spiking by 20% year-over-year. And the used vehicle market is now undoing some of the damage, unlike new-vehicle prices, which have gotten stuck at very high levels.
But it’s not so great news for companies that own lots of vehicles. Hertz got crushed by these plunging residual values along with a post-bankruptcy propaganda coup-turned-toxic. And three online used-vehicle dealers, including Vroom in January, are being dismembered in bankruptcy court. It’s not easy for the industry to work through this normalization of the used vehicle market.
Retail prices, based on the Consumer Price Index for March (April CPI comes out next week) fell by 1.1% seasonally adjusted in March from February (red in the chart below); but not seasonally adjusted, it rose by 0.5% (blue).
This roughly matches the Manheim auction price index for the same period; in March, not-seasonally adjusted, the index rose, while seasonally adjusted it fell.
Used vehicle CPI had spiked by 53% from February 2020 through the peak at the end of 2021. It has now given up 43% of its pandemic spike.
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