Used values slip but still above normal levels

Used-vehicle values are cooling off, but prices as of mid-October still hovered nearly 10 percent above year-end 2019 levels.

For the week ended Oct. 17, wholesale vehicle prices at Manheim auctions were 9.7 percent higher than at the start of the year, and retail prices were 9 percent higher, according to Cox Automotive. But prices slipped for that week compared with the week before — down 0.6 percent for 2017 models at Manheim and down 0.2 percent at retail.

"Weekly price data continued to show used-vehicle prices falling," Cox Automotive Chief Economist Jonathan Smoke said last week.

The year took an abrupt turn from normalcy in March as the coronavirus spread rapidly in the U.S. and state and local governments issued stay-at-home orders. Many businesses had to close, even if temporarily, and automakers stopped vehicle production.

Vehicle auctions went all-digital or halted sales altogether. By the second week of April, wholesale vehicle sales had plummeted as values tumbled. But May's strong recovery took hold.

With new-vehicle inventory tight from factory shutdowns, customers who wanted relatively inexpensive transportation turned to used vehicles. Government stimulus related to the pandemic further fueled the market. Through the summer, the Manheim Used Vehicle Value Index, which measures wholesale prices after adjusting for mix, vehicle mileage and seasonality, reached record levels.

It's made for a departure from some seasonal patterns. Tax-return season in the spring is typically the strongest market of the year for used vehicles, but not in 2020. The market is typically quieter in the fall, and observers have seen prices ease in recent weeks.

According to J.D. Power, used-vehicle prices peaked in mid-August and have dropped modestly but steadily since. For the nine-week period ended Oct. 18, wholesale prices of vehicles up to 8 years old dipped by about 6 percent, slipping on average by about 0.7 percent per week. Over that same period in 2019, prices declined by 5 percent.

New-vehicle inventory has improved slightly in recent weeks, but it will take time for supply to build to normal levels, Smoke said. Used-vehicle supply remains steady, at 45 days, a "normal" level given the pace of sales, he said. Wholesale supply declined slightly to 26 days, which is modestly above a normal supply of 23 days. Inventory levels remain down year over year for both retail and wholesale used vehicles, he said.