More record used-vehicle prices likely in early 2022

After hitting new highs through the fall months of 2021 as demand for used vehicles rose amid the new-vehicle supply shortage, wholesale used-vehicle prices are poised to steady in December before likely setting records again early next year.

Cox Automotive reported that the Manheim Used Vehicle Value Index, which tracks vehicles sold at Manheim's U.S. auctions, set a record in November, rising 44 percent compared with the same month in 2020. The index, which is adjusted for mix, mileage and seasonality, increased 3.9 percent from its previous record set in October.

Black Book last week reported a record and a similar surge in its own used-vehicle price index for November. Black Book's Used Vehicle Retention Index soared 45 percent above where it was in November 2020 and rose 5.4 percent from October.

The high wholesale prices are indicative of ongoing high consumer demand at a time of low supply. As dealers continue to hit roadblocks in acquiring new-vehicle inventory because of the microchip shortage, they are spending more money on used vehicles to stock their lots.

And they'll probably have to spend even more early next year to get ready for the spring selling season, traditionally the strongest period of the year for used-vehicle sales, Cox Automotive Chief Economist Jonathan Smoke told Automotive News last week. He anticipates that the Manheim index will reach new heights early next year because of that.

"We're going to start the year with incredibly tight new-vehicle supply," Smoke said. "And yet we're going to have a very strong tax refund season. We've got unemployment, if not already back to full employment, quickly getting there. So the demand side continues to be strong, but the supply side is absolutely severely challenged, and that means the used market is really where all the potential is in the near term."

Smoke, however, said he anticipates the Manheim index will soften slightly in December, leaving the November mark as the wholesale price peak for the time being.

"In the weekly numbers, we've already seen moderation over the last couple of weeks, which is exactly what we were anticipating," Smoke said.

He predicted the index will begin rising again as early as January and could reach a peak in April before declining in the second half of 2022.

Black Book estimated that used-vehicle prices will increase again in December, but at a much lower rate. That's because new-vehicle inventory volume is starting to level off, and consumer demand should dip this month because of record-breaking used retail prices, Black Book said.

Cox Automotive reported that used-vehicle sales volume continued on a downward trend in November, with total used sales down 2 percent compared with the year-earlier level.

Cox estimated used-vehicle supply at retail to be at 49 days at the end of November vs. normal supply of 44 days. Wholesale supply stood at 29 days compared with normal supply of 23 days.

The daily sales conversion rate dropped to 59 percent in November but remained elevated for this time of year, Cox reported.

By contrast, that rate was 52 percent in November 2019. That data suggests buyers were more aggressive than normal buying in the fall but less so than they were in October.