Excess inventory will further pressure values, perhaps for months. Even as demand begins to improve, prices may keep falling as almost a million deferred used-vehicle returns flow into the market. J.D. Power projects that wholesale prices won't bottom out until June.
"But that low point will be better than what we're seeing today," said Jonathan Banks, J.D. Power's vice president of vehicle valuations and analytics, "because we're arguing today's wholesale prices are still in … a very dysfunctional market."
Cox Automotive said last week it will furlough more than 12,500 employees — including about 10,000 in the U.S. — with most affected workers at Manheim's auction operations, the nation's largest. The furloughs will begin Sunday, May 17, and last up to 16 weeks.
KAR Global furloughed 11,000 employees in April. Company executives told Automotive News last week that the company has since been calling back some ADESA auction workers as business slowly improves.
"As volumes increase, we will be bringing back employees, and we already have brought back several hundred employees," CEO Jim Hallett said.
Wholesale auctions have sold about 266,000 units since mid-March, a decline of 540,000 compared with the same period a year earlier, according to J.D. Power.
Wholesale prices rose about 1 percent for the week ending May 3, compared with the previous week, but they were still 12 percent below the company's pre-virus forecast.
Retail prices have remained disproportionately strong relative to wholesale, making it attractive for dealers to buy inventory.
Both wholesale and retail backlogs have been improving. Cox Automotive's review of a rolling, seven-day estimate on used retail days' supply, based on vAuto data, showed that used retail supply jumped to 115 days on April 8 before ending the month at 53 days, compared with the normal supply of 44 days.
The company estimated that wholesale supply peaked at 149 days on April 9 and ended the month at 65 days, almost triple the usual 23 days.
"So we are starting to see as businesses reopen and shelter-at-home policies get lifted, that there is emerging activity on the retail side, which is supporting the backlog of inventory," said Zohaib Rahim, manager of economic and industry insight for Cox Automotive. "And then of course, it's helping to improve some of the pricing pressures that we saw at the start of this crisis."
At the same time, an additional 865,000 deferred used-vehicle returns are headed back to an already depressed market over the next several months, according to J.D. Power.
The excess volume will come back over the next four months, with the majority of it arriving in May and June, and keep prices about 10 percent below where they were before the COVID-19 crisis, said Banks.
It has helped that the owners of many of the deferred units — rental companies and captive lenders, for example — haven't been dumping them all at once, he said.
"Our dialogs indicate that the rental companies, even some of the more distressed ones, are going to let that volume flow through back into the market at a rate that's reasonable," Banks said.