Best, worst of times for wholesale values

The used-vehicle market has gone through one of the most turbulent periods ever seen by dealers. It's perhaps best seen in a graph of wholesale values from J.D. Power through the week ended Sept. 27.

The year was expected to see another banner selling period for used vehicles during tax-return season. J.D. Power data shows a steady ascent in wholesale values of vehicles up to 8 years old into mid-March. Then, as auctions went all-digital and many dealerships were forced to close showrooms as customers mostly stayed home when the pandemic hit, the plummet began.

For the week ended April 12, wholesale auction sales totaled just 19,000 vehicles, down 83 percent from the pre-virus weekly average, according to J.D. Power. Retail used-vehicle sales at franchised dealerships during the first 12 days of April tumbled 63 percent vs. the same period in 2019.

Yet used-vehicle prices at retail in mid-April were off by just 1 percent, according to Cox Automotive.In late April, wholesale prices started the historic climb that reached its apex in August. According to J.D. Power, prices rose 36 percent from their mid-April low.

As demand returned, supply dwindled. Cox estimates retail supply of used vehicles peaked at 115 days on April 8 and tumbled to just 31 days by the end of June. Normal retail supply is 44 days. Wholesale supply peaked at 149 days on April 9 and fell to 26 days by June's end. Normal wholesale supply is 23 days.

For the week ended Aug. 23, wholesale auction prices marked their first material decline since April, dipping an average of 0.7 percent, according to J.D. Power. It was the second consecutive week wholesale prices were flat or down.

According to J.D. Power, wholesale prices rose 0.7 percent in March, fell 14 percent in April, increased 7.1 percent in May, soared 9.5 percent in June, climbed 7.4 percent in July and rose 1.6 percent in August. From mid-August through Sept. 27, wholesale prices fell by 3.8 percent.

Wholesale values are still higher than normal, but analysts say prices are likely to follow seasonal patterns.

"Our expectation is that prices will continue to move lower in October and November as pent-up demand has been satisfied and pandemic-related macroeconomic headwinds remain a challenge," said Larry Dixon, J.D. Power's senior director of valuation services. But even at year-end, "prices are expected to be greater than pre-virus levels."