April 2008 Kontos Kommentary

Current Used Vehicle Market Conditions and Outlook

Summary

The softness in wholesale used vehicle prices continued in April, although it diminished somewhat in severity. A surge in manufacturer sales, along with continued high repo and off-lease volumes, put downward pressure on prices that was left un-dissipated, as the traditional "Spring Market" remained largely under wraps. Retail used vehicle sales by franchised dealers fell on a year-over-year basis by double digits for the first time in over a year, and independent dealers continued to struggle to generate sales.

Nevertheless, the diminished rate of reduction in wholesale prices may signal that wholesale prices and used vehicle sales are nearing the turning point we predicted for the second half of 2008. The cumulative impact of over six months of decreases in interest rates by the Federal Reserve Board, combined with the issuance of tax rebate checks from the government, promise to improve the retail and wholesale used vehicle sales environments as we approach mid-year.

In the meantime, two segments of the used vehicle market - at opposite extremes - stand a good chance of holding up well in the tough economic environment. Certified pre-owned sales continue to be strong, as shoppers seek to maximize value in their vehicle purchasing decisions. On the other end of the spectrum, buy-here-pay-here dealers may be enjoying increased traffic at their stores from car shoppers who have been turned away from other financing sources. Supplies may be harder to come by for both these segments, as late-model program car volumes have fallen and as dealer consignment of older units at auction has diminished with franchised dealers holding onto more of their trades. On the other hand, rental risk, off-lease, commercial fleet and repo units are available in good quantities to fill the gap. Thus, with a little effort, for example by searching using the latest online tools, dealers in both these segments should be able to find the inventory they need at reasonable prices.

Details

Wholesale used vehicle prices in April averaged $9,985, compared to $10,002 in March (down just $17, or 0.2%) and $10,138 in April 2007 (down $153 or 1.5%), according to ADESA Analytical Services' monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class¹. Once again, compact cars showed the strongest year-on-year price growth (up 7.2%), while full-size pickups (down 15.0%) and SUVs (down 11.8%) had the most dramatic year-on-year price declines, as rising gas prices continued to determine dealer inventory preferences in the auction lanes and online.

April prices for manufacturer sales were down 4.0% year-over-year, fleet/lease sales prices were down 2.3%, and dealer consignment sales prices were down 9.5%.

Based on data from CNW Marketing/Research, April retail used vehicle unit sales were down 10.9% year-over-year for franchised dealers, 11.0 % for independent dealers and 10.9% overall. Certified pre-owned sales are up by over 3,300 units (0.8%) through March according to data from Autodata. (April results are not yet available.)

Supporting Data:

Wholesale Price Data by Model Class Segment - April 2008
Wholesale Price Data by Model Class Segment - Full History