Margin squeeze hurts used-vehicle prices, economist says

The Manheim Used Vehicle Value Index dipped in January, registering only its second decline in the last eight months.

Tom Webb, chief economist at Cox Automotive, Manheim's parent company, said he suspects that it was retail gross margin compression in the last quarter of 2015 that pulled prices down last month, not the long-predicted growing supply of used vehicles. That growing supply, he added, will soften prices at some point this year.

He said it is only “logical” that dealers moderate their bidding until they believe their efforts will be rewarded.

“We’re getting to a level where the risk-reward to the buyer at auction has got to come back in a little better balance,” Webb said.

He cited tighter margins on new vehicles as a factor in used-vehicle pricing akin to that of higher new-car incentives. “Margin compression itself is an incentive to my mind,” he said. “So you’re pushing that market a little bit harder than you were and all those forces came into play in terms of used-vehicle values.”

The index stood at 125.2 in January, virtually unchanged from 125.3 in January 2015 but down from 125.7 in December.

The index measures changes in used-vehicle prices and is adjusted for vehicle make, mileage and time of year. It started in January 1995 at 100.