U.S. Vehicle Market is Coming Back to Life; Nov. Manheim Used Vehicle Index Hits a Record High

From today's Washington Times (thanks to Steve Bartin for sending the link):

In Germany, Mercedes Benz and BMW — both heavy seasonal advertisers this year — have shortened holiday breaks for autoworkers in response to the demand for sales. Audi, the luxury side of automaker Volkswagen, also plans to gear up production this month.

"When you see the luxury segment start to recover, it's a good sign for the rest of the economy," said Peter De Lorenzo, a Detroit-area auto analyst who operates the website autoextremist.com. "In general, the auto industry is definitely on an upward trajectory," he added. "The luxury automakers, who took a big hit the last couple of years, are definitely showing signs of rebounding. It is probably a sign that the economy is not going to go gangbusters overnight, but is going to improve with slow and steady progress."

Later in the article:

"Whether the year-end deals are a bargain for consumers is another matter. Edmunds.com, a Web-based consumer auto site, found that despite the heavy advertising and glossy commercials, the average incentive spending per car rose only $31 between October and November, when the holiday discounts were supposed to be kicking in. The average incentive per car in November was actually down $255 compared with November 2009, when auto dealers were desperate to lure any shoppers to the showroom."

With consumers coming back to auto dealers' showrooms in recent months (there was a 17.5% increase in November sales vs. last year that followed strong double-digit sales gains in both September and October), the strong demand has allowed automakers to cut back on discounting and incentives, which then results in the following:  

The Manheim Used Vehicle Index increased in November for the third straight month and brought the index up to a new record high level of 124.3 last month, rising a full 26 points above the all-time historical low of 98.0 in December of 2008 (see nearby chart). 

From Manheim's report:

"The real restraint on wholesale pricing is that imposed by the dealer’s ability to pass on cost increases. That restraint has yet to appear. Dealer margins have held steady and, with better financing and insurance opportunities, used vehicle profits for many dealers have risen to record levels."

Bottom Line: New car sales have gotten much stronger this year with double-digit gains in 9 out of the last 11 months, and the higher-end luxury segment of the car market is showing renewed signs of strength at year end.  The rebounding demand for new vehicles is apparently happening without the aggressive pricing and incentives that were much more common last year, which has also led to a strengthening of the pricing in the used vehicle market.  In sum, the consumer demand is coming back for new and used cars, even at higher prices, which has translated into rising profitability for car dealers and automakers, and an industry that has come back to life.