This week, the Manheim Used Vehicle Value Index reached 203.3, the highest in its history and the first time it has ever surpassed the 200 mark, reigniting affordability concerns as new-vehicle inventory remains squeezed well below normative levels.
How much longer can used vehicle prices remain elevated, and what secondary issues might arise from their continued increase? In this episode of the Weekly Wrap, Associate Editor Amanda Harris and Editor Joey Pizzolato discuss the week’s top stories, and what’s to come in the week ahead.
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Joey Pizzolato 00:03
Hello and welcome to the roadmap from auto finance news since 1986, the nation’s leading newsletter on automotive lending and I’m Joey Pizzolato editor of auto finance news. And joining me today is Amanda Harris associate editor. This is our weekly wrap for what happened in auto finance for the week ending June 4 2021. As always, before we get started, I want to thank auto finance news advertisers market scan, Agora Data Alfa, defi solutions, and Strook & Strook & Lavan for their continued support. In general news, dozens of websites were inaccessible this morning, including the New York Times, Bloomberg, CMM, and Amazon just to name a few. The issue was linked to cloud service companies fastly that helps sites load faster and has since been resolved. In about a good news, US health regulators approved the first new Alzheimer’s drug in nearly two decades, the therapy is supposed to slow memory loss associated with the disease. And finally, much of the 47 billion in in federal aid provided to renters as a result of the pandemic are tied up tied up behind eligibility rules and an overburdened infrastructure. Federal eviction moratoriums are set to expire on June 30, and have once already been extended in auto finance. The Manheim us vehicle index, surpassed 200, for the first time in the index history in May, this is the fifth consecutive month index has posted meteoric rises as production issues continue to plague the new vehicle market. I mean, you know, I guess, I guess really, the question is like, I mean, we’re in uncharted territory here. But how long can this really continue for? Like, I mean, I don’t know if I have a sense, but it seems to me like, at some point, the bubbles gonna burst.
Amanda Harris 01:59
Yeah, it’s like you mentioned Manheim, which we’ve been following, and has consistently gone up pretty much since the pandemic started with, you know, a few, a few months where it didn’t actually go up from the previous one. But for the most part, it’s been going up like crazy hitting record levels, I think this is the fourth or the fifth consecutive month of hitting a record. So it went over 200. And that’s the first time and in the history of index, which goes back to about 1997. So it’s just crazy. Um, so yeah, to your point, like, we know, this has gone up and up and up. And I think maybe, you know, the industry might have thought, by now it would stop, and maybe even out a little bit, but it just hasn’t. And, you know, it went up from, like, almost 5%, just from last month, which was another record. So it’s not even going up small amounts, like five is a pretty big jump, I feel like from one month in anything in our industry. So you know, it’s just, it’s just crazy. Um, but the the sentiment I’m kind of getting is, you know, this has been Dr. BMP and Dr. Really ally a lot, a lot of dwindled inventory, really strong consumer demand, you know, all those things are going to be in place for a while. But some of the pieces like demand, especially, you know, consumers are already kind of starting to back off a little bit. Um, you know, really, so far, the high prices haven’t really driven away people that want in cars, because we know demand still been strong sales have still been strong for new and used vehicles. But it does come a point where eventually, like, it gets too pricey, right. Like, even if you’re really in the market for a vehicle, even with low interest rates, you know, great loan terms, like your payment may not be that much. But eventually a car just gets so expensive that either with all those things to help, it’s going to start pricing out, you know, even people in the prime market who are looking for a vehicle. So I think we’re starting to see that, um, as you mentioned, in our story, confidence from consumers did fall a little bit in May, as well as plans to buy vehicles and houses because houses are also going up like crazy. And around me too. So I think we are kind of in that maybe starting place now. So I think it’s safe to say we might start seeing this level off a little bit of hope, you know, probably over the summer, but this is just kind of my guests with seeing what has come out, you know, from everyone this month, the fact that consumers are kind of backing up a little bit, and inventory just hasn’t yet caught up. So there’s not really anything to mitigate some of these higher prices. The only thing I could see happening is that demand might taper off which means that you know, vehicle manufacturers and stuff might slow on raising the prices, because they needed to, they need to start selling cars or incentives might come back, you know, incentives have gone away, because they haven’t really needed them. You’re selling cars without them? Why would you lose money on centers? Right? Um, so those are some of the things that I think might come, but there’s no like, really definitive answer on like, how long or where this will fall, I don’t think it’ll fall back to like, normal. Like before all this. So the new normal is gonna be really high.
Well, you know, I’m just thinking about kind of what is going on over the past year, right, you know, chips shortage, there’s been some like mutterings that maybe that will that will start to alleviate, kind of, in the second half of the year, I would imagine, you know, pent up demand eventually as to, like, return to normal, seasonal levels, right. And usually, in the summer months, we see kind of lower sales volume outside of, you know, there’s two major holidays, Labor Day and Memorial Day. So hopefully, all of that will kind of give the market a little bit of time to, you know, correct itself. And, you know, couple that with the fact that, you know, one thing that we were talking about in an internal meeting earlier is, you know, people are struggling. And, you know, we were talking about how how to manage, you know, our source outreach, and, you know, do we think that people are going to be gone for a long period of time? And how might that, you know, dry up, you know, some of the some of the contents that we have in, you know, as people travel, you know, they, they spend more more of their excess income on on those bills, rather than, you know, purchases like a car. So, you know, that to potentially can, you know, level out demand a little bit so that everything kind of gets back to normal, but I really can’t envision if we were to get through August, like, say, Come September, right in US vehicle values were still through the roof. You know, I feel like that Now, that’s a difficult scenario, the CSM.
Amanda Harris 07:23
I think part of it too, we’ve talked about one of the drivers of higher average prices, is because consumers are still buying SUVs and larger pickup trucks. And that’s been the case for months and months. So maybe as more people start traveling again, you know, gas prices aren’t super cheap right now, you know, if those go up at all, and people are putting more miles on these cars, maybe they opt for a smaller, you know, better mileage type of vehicle, and then their average prices could, you know, could start going down a little bit. It just depends, but people have, the prices are high, and people are going out and buying like the biggest bars. So I don’t really know if that’s going to change, because for some reason, that’s maybe because interest rates are so low, and they’re like, well, I can get a really good deal on my trade in and then upgrade to like a big pickup truck that’s been talked about in my own house hold. So I know that I know that, you know, trucks and stuff right now are pretty, pretty appealing, because you can really get a good monthly payment and, and right on those. And normally, you know, they would not be, you know, be sitting where they are so?
Well, I mean, speaking of tailwinds, you know, you have a story that, you know, we’re going to publish at some point today. I’m kind of about, you know, there’s a tailwind for subprime. So I thought maybe we could discuss that just just briefly. What are you seeing there as far as like these used vehicle values in subprimes? market share?
Amanda Harris 09:02
Yeah. So we’ve we’ve been falling. So primed to, we’ve kind of talked about how it was really down. It’s not really that abnormal. So private, has been losing market share since like 2016. So not so driven by the pandemic, but it definitely didn’t help. So we just kept seeing, and part of that is because consumers credit scores overall are better. So there’s less consumers in this upright space to start with. And then the consumers in the subprime space, as we’ve talked about before, maybe we’re in the market recently for vehicles. So that’s also driving it down. But then you have the other side of that, and what we could start seeing is because prices are so high, and I kind of mentioned right now trade in value, is you know, really, really good, especially on certain models of car than yours and things like that. You know, I mentioned before, we’ve apparently got a hot one in my driveway. So you know, they’re making those calls and they’re really in demand. Use vehicles, so they’re going to offer more, because they just, they just want them on the lot. So even older cars, things like that. So this is a really good chance for people in that space who are typically in the market for a used vehicle to get a better deal for their current car, which would then help them be able to afford, you know, a newer used car for them. So we could start seeing that drive people who maybe have not entered the car market in a while, maybe they are incentivized to now come into the market, which obviously grow to a prime share. The caveat there is, it might grow, but I don’t think given the trend that goes back to 2016, that it’s gonna, you know, grow that much. Or it might not even curtail, like the decline that we’ve seen because of there’s so many other factors, keeping that so low, and kind of mentioned, like the credit scores, and then just some other factors driving that. But I do think that it’ll be interesting to see if we see a little bit of an increase when we’ve only been seeing decreases for a long time. So just don’t really do something just to watch out for see what happened. I
will definitely be watching. I’m speaking on what we’re going to be watching this week. What do we have? What do we have for for everyone? In the coming days? We already lost? Yeah, I know.
Amanda Harris 11:22
I know. It’s already Tuesday, we’ve got a look at a little bit in depth look at leasing and financing trends in general to come. And we’re gonna be diving in a little bit more on the power sports market, which will be exciting, because we’ll get to talk about things other than auto. So just stay tuned for this.
Great. Well, I mean, thanks so much for joining me today. To our listeners. We want to hear from you right the roadmap or whichever platform you use to listen to it. And follow us on Twitter and LinkedIn. Thanks so much for joining us today. We’ll see you online at auto finance news.net in here next time