November Used Vehicle Market Update – Impact from Superstorm Sandy

by Layne Weber, OneMain Remarketing

After several consecutive months of declining prices, the wholesale used vehicle market began to stabilize in September and reversed course with an increase in average prices in October.  Tom Webb from Manheim reported that the Manheim Index rose nearly 1% in October and Tom Kontos from ADESA indicated that average sales prices at auctions rose 2% last month.   NADA reported that prices fell sharply in October but their analysis was a comparison to returns from October 2011 and not a monthly change.

In early November BlackBook reported a continued decline in overall wholesale used vehicle prices, specifically among four vehicle categories – prestige luxury cars, premium sporty cars, luxury level cars, and near luxury cars.  This trend was very similar to a decline that occurred in these segments at this time last year.  A consensus among all reports was that wholesale prices in October were up slightly from the previous month but down on a year over year basis.

The biggest topic regarding used vehicle prices right now is the impact on the market from Superstorm Sandy, especially in the northeast area of the country.  Initial estimates are that the damage to vehicles from Sandy could exceed the damage seen seven years ago from Hurricane Katrina when over 600,000 flood vehicles were recorded although follow up reports are predicting a lower number of loss claims.  Flood damage units for consumer vehicles will make up the bulk of the damage but many dealers are suffering losses as well.

Demand for replacement vehicles will certainly increase over the next few weeks and should lead to an increase in prices for used vehicles.  The impact is expected to be more pronounced in the northeast area of the country but also expected to have an effect in nearby areas not directly hit by the storm.

While the potential loss of vehicles is significant, the overall impact on the used vehicle market is not predicted to be as pronounced.  NADA is projecting that year over year prices will continue to decline in the 4th quarter but the decline will not be as steep as previously anticipated.  NADA projected used car prices would rise approximately 1% in the short term.  The increased demand to replace vehicles should also impact the price of new cars.  Edmunds reports that if even 100,000 vehicles are replaced by the end of the year it could boost (new car) auto sales by three to four percent for the quarter with new car prices possibly climbing from $700 to $1000 in the short term.

Even with the severe damage from the storm, the impact to both new and used vehicles prices is expected to be short term and primarily limited to areas with the most damage.  Economist Tom Kontos commented “As a result, replacement demand for new and used vehicles is likely to go up for a period of time, particularly in the Northeast corridor and especially in New Jersey.  This will tend to support wholesale used vehicle values at a time when prices were anticipated to soften seasonally and cyclically between now and year-end.  Nevertheless, these impacts should be limited in terms of severity, geography and timeframe in part because of the efficiency of the vehicle remarketing process itself.”

Layne Weber

Layne Weber

Layne Weber is a current board member, subcommittee chair, and past president of the International Automotive Remarketers Alliance (IARA). Listed in Who’s Who in remarketing for finance companies, Layne ... Web: www.onemainremarketing.com Details