Late last year, General Motors decided to hold off on auctioning many of its retired rental vehicles because of depressed prices. But lower prices on the sale of program vehicles -- those that the automaker took back after they were retired from rental fleets -- hurt GM's first-quarter operating profit by about $400 million, the company said.
CFO Chuck Stevens said GM had a "significant volume of past-model vehicles" -- or vehicles that typically would have been sold late last year -- going to auction in the first quarter. Those vehicles weren't sent to auction last year because GM had prioritized repairs to customer vehicles, delaying fixes for those in rental fleets, Stevens said.
That backed up the normal flow of program vehicles to auction in late 2014 and resulted in an oversupply that depressed prices. Stevens said GM sold about 50,000 more "past-model" vehicles at auction in the first quarter than a year earlier.
In December, Dan Kennedy, senior manager of GM Remarketing, told Automotive News that when the prices dropped, GM decided to dramatically scale back on vehicles sent through the auctions to protect prices. He said at the time that GM's auctions, typically open only to GM dealers, would resume a normal schedule on Jan. 5.
The industrywide average wholesale used-vehicle price in March rose 4.7 percent from February and 2 percent from a year earlier, ADESA data showed. But Tom Kontos, chief economist for ADESA, said the March data do not take into account "the large portion of off-rental program vehicles" that failed to sell at auction because bids didn't reach the seller's minimum price. "Ignoring this factor leads to a false sense of confidence in the strength of wholesale values," he wrote in a monthly commentary.
Despite the hit, GM's pretax operating profit in North America of $2.18 billion was the best first-quarter result since its 2009 bankruptcy.