Tuesday, September 08, 2009

8th Monthly Increase in Used Vehicle Price Index

Wholesale used vehicle prices rose for the eighth consecutive month in August (see chart above). The Manheim Used Vehicle Value Index for August was 116.4, an increase of 5.1% from a year ago.

The driving force pushing wholesale used vehicle values to ever-lofty levels has been primarily inventories - or, more precisely, the lack thereof. The reduced number of vehicles entering the wholesale market (as a result of declining dealer consignment and off-rental volumes) has been an ongoing story all year. More recently, new vehicle inventories have fallen to extremely low levels as a result of plant shutdowns and the increase in sales created by Cash-for-Clunkers.

From a previous Manheim Consulting report:

Some analysts have suggested that the rapid rise in wholesale used vehicle pricing is a precursor to an improvement in new vehicle sales and may even point to a recovery in the overall economy.

MP: The 1 point August increase in the Manheim Used Vehicle Value Index marks the 8th consecutive monthly increase (every month this year), following decreases in 10 out of the previous 14 months (from October 2007 to December 2008). The year-to-year increases in May (1.5%), June (5.8%), July (5%) and August (5.1%) for the index follow 17 consecutive months of consecutive year-to-year decreases (Nov. 2007 to April 2009). Further, the August 2009 reading of 116.4 was the highest since March 2001, and higher than the pre-recession level.

Certainly, the Cash-for-Clunker factor might have created a temporary upward bias in the used vehicle index over the last couple months, but there was already a strong upward trend in place, and the 18.4 point 8-month increase from November-August could reflect the momentum of an economic recovery.


At 9/08/2009 3:17 PM, Anonymous Anonymous said...

How, how, how in the world do rising prices of USED vehicles indicate an economic recovery?

Manheim clearly states the price increase is mainly due to a lack of supply which preceded C4C. This was from lower NEW car sales and hence fewer trade-ins available for sale.

While generally new and used cars are both normal goods, relative to new cars used cars are inferior goods. That indicates declining incomes which is supported by data from household balance sheets.

How do you spin this web of fiction?

At 9/08/2009 6:28 PM, Blogger juandos said...

"How, how, how in the world do rising prices of USED vehicles indicate an economic recovery?"...

Hmmm, that was my initial thought also...

Then again if used cars are selling at the higher prices then couldn't be a possible indicator that at least in some parts of the country there are people with more money to spend?

At 9/09/2009 4:52 AM, Blogger KO said...

Although an inferior good, it's not a good that's being manufactured as an inferior good. The only way to increase supply is for people to put their inventory on the market, or for people to buy superior goods and have them turn into these inferior goods.

Net of auto accidents and other cars that are scrapped, the 10 million new cars being sold this year probably means several million increase in vehicles overall. It doesn't appear to be a price increase in a declining pool. The text in a worsening economy could easily be "prices are declining due to steadily increasing supply of used cars."

The supply of the used cars isn't being soaked up at decreased prices like houses are. Prices increased and are increasing. Barring a flood of people selling their cars in the market, the only way to alleviate the supply problem is for new car sales to eventually go up.

I view it as a positive sign. If things get worse, families will start putting their 2nd cars on the market as one spouse isn't able to find a job and the money is needed more than the car.


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