Other marketplace factors unique to the pandemic are impacting the types of vehicles coming into auction. Repossessed vehicles typically account for 12 to 16 percent of cars sold at auction annually, said Tom Kontos, chief economist at KAR Auction Services. Vehicles from dealerships make up about 50 percent.
As dealerships buy back as many off-lease and trade-in vehicles as possible, repossessions are making up a greater percentage of a lower volume of vehicles in the auction pipeline, he said.
"Dealers really hold on to as many of the trades that they can take at a time like this, when inventories are sort of lean at dealerships both on new cars and on used cars," Kontos said.
The total volume of vehicles headed to Manheim auctions is down 22 percent from the previous year, the company said, though repossession levels remain consistent with prior years. Inventory sourced from dealerships, however, tanked at the onset of the pandemic, dipping to 39 percent from a high of 52 percent the previous year.
Though repossessions make up a larger portion of the vehicles coming through auctions, the number of repossessed cars in 2020 is lower than in previous recessions. Repossessions rose 50 percent year-over-year at the peak of the 2008 financial crisis, Chartier said, though the economy lacked the support provided this time by the Coronavirus Aid, Relief and Economic Security Act.
Stimulus measures, including the $600 boost in unemployment and $1,200 checks sent this spring, likely prevented a wave of repossessions that auction lanes typically see during a recession. Lender forbearance programs also prevented millions of auto loans from going into default. Ford Credit's repossession rate dropped to 0.52 percent in the second quarter, down from 1.13 percent in the same period a year earlier, in part because of the government stimulus and the lender's decision to temporarily suspend involuntary repossessions.
Though used-vehicle values are declining as the year progresses, demand likely will keep pricing above 2019 levels, said Jonathan Banks, vice president of vehicle valuations and analytics at J.D. Power.
"Even if repossessions increase, because lenders tend to use traditional auction channels to sell repossessed vehicles, it's not going to push prices down," Banks said. "I don't think repossessions are going to cause big disruptions in the auction market."