Rush to Replenish Auto Dealer Inventory Puts Upward Pressure on Used Vehicle Prices

eTradeWire News/10569474
MCLEAN, Va. - eTradeWire -- Used-vehicle prices are poised to reach pre-virus levels as the wholesale-to-dealer supply chain continues to recover, according to the latest COVID-19 Valuation Services Update from J.D. Power.

"Dealers have been gradually selling down used-vehicle inventory at retail while they have not been adding to inventory via wholesale auction purchases at the same pace," explains Jonathan Banks, VP Vehicle Valuations & Analytics, Valuation Services, J.D. Power.

The reason? In order to carefully balance supply and demand through a severely disrupted market, dealers were cautious to not overstock inventory. As the industry recovers and more markets open, demand for used vehicles is increasing and dealers will need to quickly replenish inventory accordingly to meet this need.

Dealers are increasingly turning to physical auctions to fill inventory gaps created over the past several weeks. As a result, wholesale auction prices jumped another 2.3 percentage points for the week. This places prices 11.2% higher than they were five weeks ago.

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"Prices are now less than 2% removed from our pre-virus expectations and are on par with levels recorded back in mid-March," Banks says. "Thus far, wholesale auction prices have essentially performed as we have expected for many weeks now. They are substantially stronger than many had projected. In fact, prices may surpass pre-virus expectations in the near-term as dealers replenish used vehicle inventory depleted by relatively robust used retail sales."

The road ahead, however, is not without its challenges. While wholesale auction prices are rapidly approaching pre-virus levels, prices will likely exhibit volatility moving forward as dealers replenish retail inventory; an influx of off-lease and off-rental units enter the market; and economic headwinds affect consumer demand.

Used-Vehicle Wholesale Volumes Strong

Volumes in the used-vehicle wholesale market rose 6% to a total of 91,000 units, just 11% below our pre-virus forecast of 103,000 units for the week.

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"This is especially impressive considering that most auctions across the country remain in digital-only mode," notes Banks.

Auction sales have totaled 534,000 units since mid-March, a decline of 609,000 units vs. the same period in 2019 and a loss of 517,000 units vs. our pre-virus forecast.

"With very few exceptions, segment-level auction sales were up across the board for the week," Banks says. "This strong showing was led by midsize SUVs, midsize vans and small SUVs where sales increased an average of 16%. In addition, certain segments were within 10 percentage points of pre-virus sales levels, including midsize pickups, compact premium SUVs and midsize premium SUVs."

Used Retail Sales Remain Stable

Used retail sales are recovering more quickly than new-vehicle sales. For the week ending May 24, used retail sales were just 10% below pre-virus expectations, compared to 25% below expectations for new vehicles.

To read the entire COVID-19 Valuation Services Update from J.D. Power visit:

https://bit.ly/36HBgV7

Source: J.D. Power
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Filed Under: Automotive, Jd Power

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