Astounding Distortions & Historic Price Spikes in Used Vehicle Market Begin to Unwind

Astounding Distortions & Historic Price Spikes in Used Vehicle Market Begin to Unwind

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This stimulus economy is producing the weirdest effects.

By Wolf Richter for WOLF STREET.

This has been an amazing sight: The used vehicle auction market’s descent into the deep-freeze during March and April, in terms of volume and prices, and then the phenomenal spike in prices into the summer, and the reversal starting in late August and accelerating in September and early October.

In the week ended October 4, auction prices for vehicles up to eight years old declined 1.2% from the prior week, the seventh week in a row of price declines, according to J.D. Power data, released this afternoon. Its weekly price index is now down 4.8% from the peak of the price spike in mid-August, but remains substantially above pre-Pandemic levels:

From a different and long-term point of view, the monthly Manheim Used Vehicle Value Index, which tracks auction prices and is mix-, mileage-, and seasonally adjusted, fell in September after a magnificent spike over the summer.

A month ago, in its August release, Manheim, the largest auto auction house in the US and a unit of Cox Automotive, had noted that values were rising at a “decelerating pace” in the first part of August and then began backtracking in late August. In September the index fell 1.6% from August, but is still up 15% from a year ago – a stunning historic collapse-and-spike:

In terms of Manheim’s “Three-Year-Old Index,” it fell 2.9% in September. Manheim Market Report (MMR) prices fell at “an accelerating pace over the four full weeks of September”; in the last full week of September, it declined 0.9%, “the biggest weekly decline in 22 weeks.”

The chart below, via Manheim’s October Presentation, depicts the Three-Year-Old Index for past years, and in bold purple for 2020, in terms of how prices changed from week 1 (=100%), with prices generally declining later in the year. But 2020 has been a spectacular outlier, though the decline now too has set in:

As a sign of our times, Manheim reported that at its auctions, 87% of the vehicles were purchased on its digital auction platforms – “Dealers are choosing digital over physical,” it said. And overall auction attendance, fired up by the surge on its digital platform, has grown by 5% from the pre-Pandemic weeks in 2020 to an average of 87,900 per week in weeks 22-29.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.