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Used retail sales at franchise dealerships are down, but not to the same extent as wholesale auction sales.

Hard-Hit Wholesale Vehicle Market Only Begins to Recover

Car dealers “are reluctant to add replacement vehicles to their inventory,” says J.D. Power’s Jonathan Banks.

The wholesale vehicle market effectively shut down from the economic effects of the COVID-19 virus and is only beginning to recover, says Jonathan Banks, J.D. Power’s vice president and general manager-vehicle valuations.

Used-vehicle wholesale auction volumes were down 80% for the week ending April 12. 

One reason? Dealers are selling down their used-vehicle retail inventory, much of which was purchased before March 15. “They are reluctant to add replacement vehicles to their inventory,” Banks says during a J.D. Power webinar.

Wholesale prices fell 16% for the week ending April 12. Physical auction facilities are closed. The only wholesale dealer auction action is online because of public-health restrictions.

Wholesale auction activity likely “has reached an inflection point” and will begin to recover, Banks says. But of late, “there have been quite a few no-sales.”

Jonathan Banks - Copy (3).jpgUsed-vehicle sales at franchised dealerships declined 61% vs. the pre-virus forecast. That’s 7 percentage points worse than new-vehicle sales. (Jonathan Banks, left) 

However, pre-owned vehicle retail prices remain relatively strong for now. Prices consumers are paying resemble pre-virus levels. But cashflow issues may drive prices down as dealerships look to maintain liquidity, Banks says.

“Dealers control that retail price,” notes Patrick Janes, director-wholesale management solutions at vAuto an inventory-management software provider. It’s a matter of when and if dealers lower prices under slow-sales circumstances.

“As (vAuto founder) Dale Pollak says, “Dealers will take a haircut, but we want to prevent them from getting a buzzcut,” Janes says.  

A de-escalation in used prices will put profit pressures on retailers, drive OEM losses on lease returns and decrease consumers’ purchasing power as trade-in equity drops, Banks adds.

Used retail sales at franchise dealerships are down, but not to the same extent as wholesale auction sales. Retail sales totaled just under 400,000 units in four weeks, while wholesale auction sales reached just 93,000 units.

Pre-virus, there were roughly two used retail sales at franchise dealers for every auction sale. Last month, the ratio averaged more than four used retail sales per auction sale at the end of March.

Banks foresees wholesale prices declining 8%-16% through June “before improving dramatically as the country opens up.” Until then, “we’ll have a rough couple of months.”

He expects an ultimate increased demand for used vehicles, in part because many consumers who availed themselves of ride- and car-sharing services pre-virus are expected to opt instead to buy their own vehicles because of health concerns.

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