Dealers Navigate a Shift in Used-Car Values

The Manheim Used Vehicle Value Index for wholesale, used-vehicle auction values was higher for the month of November than the same month a year ago – just barely – but it was the first year-over-year increase in the monthly index in more than two years.

That’s potentially bad news for dealers if it persists, because dealers would prefer to see values continue to decline. Auction prices have been trending down, but only compared with record levels three years ago. Prices are still substantially higher than they were before the pandemic.

The big, publicly traded dealer groups report they are working to “self-source” as many used cars for resale as possible through trade-ins, lease turn-ins and “street” purchases from individuals who bought their vehicle elsewhere and who don’t intend to buy at the dealership.

Dealers are also stocking up on older, higher-mileage used cars. “We are really encouraged by our performance in Value Autos, which were up 14% year-over-year,” Adam Chamberlain, COO for Lithia Motors Inc., says in a third-quarter earnings call. Lithia calls used vehicles that are at least 9 years old its Value Autos brand.

 Change in Direction?

The Manheim Index for November 2024 was 205.4, vs. 205 in November 2023. That’s a percentage increase of just 0.2%, but it followed 26 consecutive months where the index was lower than the year-ago month.

To put that in context, the most recent high for the Manheim Index was 257.7, in January 2022. In February 2020, just before the pandemic, it was 156.6.

The Manheim Index is a single measure designed to track used-vehicle wholesale price changes, weighted for a changing mix of product segments and mileage, and seasonally adjusted. The index is calculated relative to a starting point, where January 1997 equals 100.

Reasons for the Shift

Wholesale used-vehicle auction values have been declining because new-vehicle supply has rebounded. OEMs are responding to a higher days’ supply of new vehicles with an increase in factory incentives on new cars and trucks – especially battery-electric vehicles.

New-vehicle incentives typically cause a corresponding fall in used-vehicle values. However, analysts have noted that the decline in average used-vehicle values has been slowing this year, due to a couple of factors that support higher prices.

One is that late-model used cars are relatively scarce, reflecting low new-vehicle production during the pandemic, and which continued due to supply-chain problems. Another factor is a sharp decline in lease turn-ins. Fewer 3-year-old, off-lease vehicles are reaching auctions because new-vehicle leases fell sharply beginning three years ago.

Back then, the new-vehicle market environment was the other way around: extremely low inventory, high demand and low incentives.