Used-car wholesale values remain high as franchised dealers once again look to their pre-owned operations to make up for issues complicating life in the new-car department.

Dealers had placed a stronger emphasis on used-car sales when new-car sales went into a free-fall, dropping from 16.1 million in 2007 to 13.4 million in 2008 to 10.6 million in 2009.

Now, ironically, instead of dealerships contending with lots filled with unsold new models, they face new-car inventory shortages. Dealers are amping up used-car efforts “to offset the impact of lower new-vehicle inventories,” says Tom Webb, chief economist for Manheim Consulting.

As a result, used-vehicle demand remains strong, although actual deliveries are off a bit, he says, noting pre-owned sales in May slipped 1.4% from year-ago level.

Total dealer used-car transactions were down 0.9% in May, but independent dealers bore the brunt.

Franchised dealers' used-vehicle sales increased 2.8% last month. Independent dealerships' deliveries dropped 4.4%, because of “increased competition from franchised dealers,” Webb says.

Also hurting the independents is less availability of vehicles in their desired price point at auction, he says. Used-car dealers typically retail cars that are older and less expensive than the ones on franchised dealers' lots.

The low new-car inventory levels stem from two things.

One, the aftermath of the Japanese earthquake and tsunami in March continues to affect vehicle production on a global level. Two, domestic auto makers have dialed down production to avoid overcapacity issues of the past.

Wholesale used-vehicle prices increased again in May and pushed the Manheim Used Vehicle Value Index to another record high: 127.8, representing a 5.6% increase from the year-ago level.

In recent months, higher transaction prices and leaner inventories in the new-vehicle market have nudged up the natural limit to which used-vehicle values can rise before getting too close to new-car prices, Webb says.

“This environment in the new-vehicle market, which is supportive to used-vehicle values, is expected to persist for several more months,” he says.

In addition, fewer commercial consignments continue to constrain vehicle offerings at wholesale auctions such as Manheim's.

Overall auction prices last month increased 5.8% from year-ago, according to Manheim. Compact-car auction prices were up 20.1%, but now are softening slightly. Midsize car prices rose 14.4% and luxury cars 1.1%.

SUV and CUV prices were off the most, 5.8%, followed by 4% for pickup trucks.