Credit Freeze Hits Used Cars

New-vehicle sales continue to drop due to tighter credit restrictions and a struggling economy, and used-vehicle prices and profits are falling just as fast for dealerships around the U.S. Tom Kontos, executive vice president-customer strategies and analytics, ADESA, says wholesale used vehicle prices (in October) registered sequential and annual declines that were the most dramatic since the analytical

New-vehicle sales continue to drop due to tighter credit restrictions and a struggling economy, and used-vehicle prices and profits are falling just as fast for dealerships around the U.S.

Tom Kontos, executive vice president-customer strategies and analytics, ADESA, says “wholesale used vehicle prices (in October) registered sequential and annual declines that were the most dramatic” since the analytical services group created a formula to track it 15 years ago.

Wholesale used-vehicle prices in October averaged $8,628 — the lowest average auction price since February 1995 when autos cost about $7,000 less.

Meanwhile, average prices were down 9.6% compared to September and 11.3% in October year-over-year.

“The closest period for comparison to these price declines was roughly six weeks following 9/11, when prices in September and October 2001 fell by over 10% versus August 2001,” says Kontos, in his monthly current used vehicle market conditions and outlook commentary.

Kontos says that price decline was exceeded in about four weeks during October 2008.

“A major difference, however, is that availability of credit was not an issue at the time,” he says.

Manheim Consulting's Current Monthly Index depicted similar results and sentiments.

Tom Webb, chief economist-Manheim, writes in his monthly report that “wholesale used vehicle prices fell 6% in October, by far the largest single-month decline in the Index's 14-year history.”

Webb says the stall in wholesale activity was a direct outcome of the “unprecedented slowdown in retail activity that resulted first from the turmoil in retail and wholesale financing.”

It also can be attributed to the “sharp weakening in the labor market and consumer confidence,” he says. “The magnitude of the shift downward suggests that this may be a quick correction with respect to wholesale pricing.”

Webb says the broader weakening economy “is expected to continue well into 2009.”

Ricky Beggs, vice president and managing editor for the vehicle appraisal guide Black Book, says “it's definitely been a challenging year for the industry, only domestic cars have depreciated at ‘normal’ historical levels.”

Among the 21 vehicle segments that Black Book tracks, it says the ones that depreciated the least from August through October were full-size pickups, full-size SUVs, mid-size pickups, full-size vans and compact pickups.

“It's been a tough used-car market, especially for the sellers,” Beggs says. “Every segment of the industry is being affected.”

ADESA reports that full-size SUVs and pickups in October ended their month-over-month improvement in prices that began in July, while minivans also showed major price declines.

Compact cars, they say, is the only segment that demonstrated year-over-year price gains — but on a sequential basis, or month-over-month, their average prices were down 14.4%, more than any other model or class.

Wholesale used vehicle prices for compact cars were up 2.3% in October, compared to the same month a year ago.

Those numbers mirrored Manheim's results, which say the downward movement in October with regard to used-vehicle prices was most severe for small and mid-size cars.

“That erased most of all of their earlier gains during the year and brought the year-over-year price performance of the various market segments closer together,” Webb says.

ADESA has tracked 10 months of year-over-year wholesale price declines.

Based on that tracking, Kontos says:

“Consignors at auction would be best advised to brace themselves for continued softness in wholesale prices through the remainder of the year and well into 2009.”

Wholesale Used Vehicle Price Trends
Average Prices ($/Unit) Latest Month Versus:
Oct-08 Sep-08 Oct-07 Prior Month Prior Year
Total All Vehicles $8,628 $9,540 $9,721 -9.6% -11.3%
Total Cars $8,055 $9,217 $8,573 -12.6% -6.0%
Compact Car $6,281 $7,335 $6,142 -14.4% 2.3%
Midsize Car $6,467 $7,499 $7,007 -13.8% -7.7%
Fullsize Car $5,920 $6,479 $8,286 -8.6% -28.6%
Luxury Car $12,551 $14,016 $13,707 -10.4% -8.4%
Sporty Car $10,939 $11,961 $12,218 -8.5% -10.5%
Total Trucks $9,151 $9,839 $10,907 -7.0% -16.1%
Mini Van $6,118 $6,710 $7,960 -8.8% -23.1%
Fullsize Van $6,778 $7,506 $8,788 -9.7% -22.9%
Mini SUV $8,541 $9,407 $10,357 -9.2% -17.5%
Midsize SUV $8,589 $9,230 $10,478 -7.0% -18.0%
Fullsize SUV $10,154 $10,507 $12,993 -3.4% -21.8%
Luxury SUV $18,230 $19,222 $21,433 -5.2% -14.9%
Compact Pickup $6,375 $6,978 $7,189 -8.6% -11.3%
Fullsize Pickup $9,198 $9,834 $11,571 -6.5% -20.5%
Source: ADESA Analytical Services.
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