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What’s Going on in the Used Cars & Trucks v. Carmageddon?

Summary:
Sales are declining again, after having risen for years. Wholesale prices slip year-over-year for first time in 33 months. But “cars” still dominate “trucks.” Used-vehicle prices in October at wholesale auctions around the US experienced the first year-over-year decline after 32 months in a row of gains, inching down 0.4% from October 2018, according to the Used Vehicle Value Index by Manheim, the largest auto-auction house in the US, running about 8 million vehicles through its auctions a year. The index is adjusted for mix, mileage, and seasonality. This followed two phenomenal spikes that started in the summer of 2017, interrupted by partial retracements. Year-over-year comparisons are tough because October 2018 had been the peak of the second spike after “abnormally strong

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Sales are declining again, after having risen for years. Wholesale prices slip year-over-year for first time in 33 months. But “cars” still dominate “trucks.”

Used-vehicle prices in October at wholesale auctions around the US experienced the first year-over-year decline after 32 months in a row of gains, inching down 0.4% from October 2018, according to the Used Vehicle Value Index by Manheim, the largest auto-auction house in the US, running about 8 million vehicles through its auctions a year. The index is adjusted for mix, mileage, and seasonality.

This followed two phenomenal spikes that started in the summer of 2017, interrupted by partial retracements. Year-over-year comparisons are tough because October 2018 had been the peak of the second spike after “abnormally strong consumer demand,” which encouraged dealers “to spend a record amount for used vehicle inventory,” Manheim said:

What’s Going on in the Used Cars & Trucks v. Carmageddon?

The 32 months in a row of year-over-year price gains that has now ended was the longest such period since April 2001. It exceeded the 29 months of year-over-year price gains from May 2009 through September 2011.

In those months back in 2009, which followed the collapse of the auto industry during the Financial Crisis, the price gains were initially driven by a basic bounce-back and then by the “Cash for Clunkers” program, which destroyed a generation of the most affordable cars on the road:

What’s Going on in the Used Cars & Trucks v. Carmageddon?

By major segment, wholesale prices declined on a year-over-year basis in all segments but luxury cars:

What’s Going on in the Used Cars & Trucks v. Carmageddon?

Prices of used versus new vehicle.

In terms of new vehicles, the Average Transaction Price (ATR), which is the price after incentives and discounts that the consumer pays, has surpassed $38,000 this year, according to KBB (blue line, right scale in the chart below).

The non-adjusted average used-vehicle wholesale price has hovered in the $13,600 to $14,100 range this year (red line, left scale), according to Manheim’s Wholesale Market Insights for the third quarter. Note the seasonality for used and new vehicle prices (click to enlarge):

What’s Going on in the Used Cars & Trucks v. Carmageddon?

Cars versus Trucks.

For years, I’ve been discussing what I call “Carmageddon,” the collapse of new car sales, as Americans have switched to buying new vehicles that are classified as “trucks” — SUVs of all sizes, including compact SUVs though they are based on car chassis and drivetrains; pickups; and vans. The chart below displays Carmageddon, with my estimate for 2019 based on new-vehicle sales through Q3:

What’s Going on in the Used Cars & Trucks v. Carmageddon?

Manheim divides “truck sales” further by category to show which “truck” category of new vehicles benefited the most from the collapse in new car sales.

  • The share of new cars plunged from 52% of total new vehicle sales in 2009 to about 29% in 2019.
  • The share of SUVs, which include car-based compact SUVs, soared from 29% in 2009 to 49% in 2019. In other words, nearly half of new vehicles sold are SUVs and compact SUVs.
  • The share of pickups inched up to 17%.
  • The share of vans declined to 5% (chart via Manheim):

What’s Going on in the Used Cars & Trucks v. Carmageddon?

But this is not the case for used vehicles that are sold at Manheim’s auctions. The share of cars has declined since 2016 from around 53% of total wholesales, to 47% (compared to a 29% share for new vehicles). In other words, still nearly half of the vehicles going through auction are cars.

The share of used SUVs and compact SUVs has ticked up from around 30% of auction sales in 2009, to 36% (compared to a 49% share for new vehicles). The share of pickups has remained roughly stable at round 12%, and the share of vans has declined to 5% (chart via Manheim):

What’s Going on in the Used Cars & Trucks v. Carmageddon?

In September, according to Manheim’s Q3 report, the top-selling vehicles at the Manheim auctions were:

  1. 2017 Hyundai Elantra Sedan SE (compact car premium), $10,350
  2. 2016 Nissan Rogue AWD (SUV midsize), $13,700
  3. 2017 Ford Escape FWD (SUV entry), $13,150

Total used-vehicle sales peaked long ago.

Total used vehicle sales volume, which includes wholesales, rose 1.4% year-over-year in October to a seasonally adjusted annual rate of 39.6 million vehicles, according to estimates by Cox Automotive, which owns Manheim. Cox estimates that for the full year 2019, used vehicle sales will come in at 39.2 million, down from 39.4 million in 2018. The hope for used vehicle sales to once again reach 40 million units for the full year is becoming increasingly distant.

The last time the used vehicle market clocked in with 40 million or higher unit sales per year was in 2006, with peak-used-sales at 43 million units in 2005 (click to enlarge). The estimated sales of 39.4 million units in 2019 takes used vehicle sales back to where they’d been in the 1990s:

What’s Going on in the Used Cars & Trucks v. Carmageddon?

Used vehicle retail sales only (excluding wholesales) in October rose 4.0% year-over-year to a seasonally adjusted annual rate of 20.6 million vehicles, according to Cox Automotive estimates. Despite the expected decline in total used vehicles sales in 2020 to 39.0 million units, Cox expects retail used vehicles to tick up to 20.0 million vehicles, as used vehicles are an ever more essential alternative for American auto buyers who are priced out of the new-vehicle market, or for whom endlessly surging new-vehicle prices have stopped making sense.

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What’s Going on in the Used Cars & Trucks v. Carmageddon?

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Wolf Richter
Founder, Wolf Street Corp. In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China.

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