J.D. Power Tracks Another Weekly Drop in Used Auto Prices
While the decline of wholesale auction volumes appears to have leveled off, the auto industry witnessed another consecutive week of used vehicle price declines across segments last week, according to the J.D. Power COVID-19 Valuation Services Update.
"It was encouraging to see wholesale auction sales hit 19,000 units during the week ending April 12. It represented a 7% rise over the prior week's paltry 17,900 units," says Jonathan Banks, VP Vehicle Valuations & Analytics, Valuation Services, J.D. Power. "It was not enough, however, to stem the downward trend on wholesale prices.”
Volume over the first two weeks of April was 80% below both April 2019 and the J.D. Power pre-outbreak forecast. Auction volume has totaled fewer than 130,000 units since virus-related disruptions began in earnest in mid-March.
Volume for most segments remains exceptionally low. This is especially true on the luxury side of the market where volume for numerous segments hovered around 100 units. While volume did rise somewhat across higher volume mass market segments, totals remain well below pre-virus levels. For example, compact car sales reached 2,800 units last week, down from the roughly 15,500 units sold per week in February of this year.
"All in all, we have seen a decline of 300,000 units -- or 70% -- against our pre-virus volume forecast, which is having a detrimental effect on valuations across the board," says Banks.
Diverging Downward Pressure on Wholesale and Retail Prices
Wholesale auction prices fell once again, dropping 2.5% through the week ending April 12. The dramatic decline in volume and the 15% drop in prices due to COVID are clear indications that the wholesale auction market has a long way to go before returning to anything like a normal functioning market.
Retail sales at franchise dealers for the week ending April 12 were down 59% compared to the same week in 2019. Month-to-date used retail sales are down 63%, or 265,000 units, versus the same period in 2019. Sales for the month of March 2020 were off by 38% when compared with the same month in last year.
"That said, used retail prices, continue to outperform wholesale with prices falling only by 1% last week versus the week prior. The difference in wholesale and retail price performance is due in large part to a disparity in sales activity. While both have been significantly disrupted, franchise dealers' used vehicle sales were approximately three times greater than wholesale sales over the past four weeks," explains Banks.
On a mix adjusted basis, retail prices finished the week of April 12 down just 1.2%, or $260, from levels recorded at the end of February.
Looking Ahead
J.D. Power continues to project used prices to fall by 7% through June 2020 before beginning to recover.
"The outlook is centered on macroeconomic projections that remain highly fluid. A major factor will be the national employment picture. Our models assume that significant job losses will continue through the second quarter but will then be followed by a gradual recovery in the second half of the year. Our forecast has prices falling by 2% on a full-year basis versus 2019," says Banks.
(To read the entire COVID-19 Valuation Services Update from J.D. Power visit: https://bit.ly/3ahgHis)