It’s our pleasure to keep our viewers “in the know” about what is going on in the industry.
Choose the article you would like to read.
ATLANTA — After reporting that consumer demand is driving wholesale prices up, Manheim’s Tom Webb covered one player that could potentially reverse this price trend in the future: off-lease and off-rental vehicles.
During a July conference call to discuss Manheim Used Vehicle Value Index movement for the second quarter, Webb touched on a topic many dealers and industry followers are following closely: the expected influx of off-lease vehicles stemming from the pickup in leasing which began back in 2010 and 2011.
Now, those fleet and lease vehicles that were bought up three to four years ago are heading into the lanes.
And Webb said though off-lease volume grew at a steady pace at auction so far in 2014, Manheim expects this rate to pick up even more during the second half of the year.
“They (off-lease volumes) are continuing to grow — we expected the increases in the back half of this year would be more than the first half, and that is the case,” said Webb, chief economist at Manheim Consulting. “Certainly the off-lease volume is tracking along with expectations. The percentage of those that end up in a traditional auction process is pretty much in line with expectations, as well.”
Webb pointed out that since residual values are very strong, a large percentage of these off-lease vehicles are still being bought by franchised dealers as well as lessees.
But, that said, the tides are turning.
“A greater number of off-lease units are getting into the auction environment — and not only that, the open auction environment, as well,” said Webb.
He pointed out that lease returns are growing at such a volume that the lessors and the franchised dealer network “cannot absorb” them all, pushing many units into the auction lanes.
And Webb said, “Bigger growth is yet to come.”
As for how this volume growth will impact used prices, the prediction for cheaper auction units comes with a caveat.
“The volumes are certainly going to grow, and at an increasing rate, so you would expect that would put downward pressure on prices,” said Webb. “The offset again is that tremendous strength in retail demand is keeping prices up.”
In fact, consumer demand is what played a part in pushing used prices up in the second quarter.
Attractive financing has put car purchases within more consumers’ grasp, said Manheim, and this change was illustrated in the 1-percent spike in the Manheim Used Vehicle Value Index in the second quarter versus Q1 rates.
Newer Models in the Lanes
Webb pointed out one other trend to keep an eye on, as well, as more off-lease vehicles enter the lanes.
When leasing fell off after the recession, the auction lanes were primarily stocked with older mileage vehicles, many of which were dealer trade-ins that stores were having trouble retailing.
This put pressure on prices, as well as dealers trying to stock their lots with quality, used inventory.
Now, as leasing has picked up and the first big batch of off-rental and off-lease rides since the recession is starting to flow into the industry, Webb pointed out the amount of lower mileage, 3-year-old inventory at auction will spike — but it may be a slow process.
“It (ratio of high mileage, older vehicles to younger, low-mileage vehicles) is starting to shift back, but it is shifting very slowly,” said Webb.
“You see 3-year, prior-model-year, off-lease volumes are picking up,” he added. That said, dealer consignment volumes have continued to grow this year also, Webb said, which is still keeping the auction lanes stocked with older, higher-mileage vehicles, as well.
A trend among rental companies may have contributed to an older stock of vehicles at auction during the first half of the year, as well.
“A couple of the (rental) companies did keep vehicles in service longer this year because they had a need for them,” Webb said.
This caused many vehicles that normally would have hit the lanes in March to come back in May; and this extension equated to slightly higher vehicle mileage in Q1 and Q2.
But these trends are temporary, as Webb predicts the volume of younger, lower-mileage vehicles at auction to continue to grow.
Webb said, “It (volume of lower mileage, younger vehicles at auction) won’t go back to levels seen before the recession, but it will trend back quite a bit.”