Stable used vehicle pricing bodes well for auto lenders

Average used vehicle wholesale prices registered a slight increase in July after four months of year-over-year declines, according to Tom Kontos, Chief Economist for KAR Auction Services.

“However, this was primarily due, once again, to a shift in sales mix toward the truck model classes and the continued influx of newer off-lease vehicles, both of which have been tending to drive up average prices,” Kontos said. “Still the summer market for used vehicles appears to be solid, both at the wholesale and retail levels.”

Kontos in March addressed the American Financial Services Association’s (AFSA) Vehicle Finance Conference and said the subprime auto lending market remains stable, debunking the myth of a looming crisis in subprime auto lending.

“I don’t believe we will have a crisis in auto finance,” he said then. “Delinquency rates are rising slightly, but they are considerably lower than they were during the last recession. We are not going to have a Carmageddon.”

Kontos’ July analysis showed pricing increases on three-year old vehicles with 36-45 thousand miles. Year-over-year, midsize cars were up 5.9% from an average price of $11,493 to $12,169 per unit while midsize SUVs and crossovers increased only 2.2% from $20,105 to $20,541.

Kontos explained that the incoming supply of trucks being higher than cars keeps the year-over-year pricing on incoming trucks tighter than on the lower-priced passenger cars.

“The strength of the pricing for both vehicle groups indicates that upstream sales (at originating dealerships) are preventing an oversupply of off-lease units from reaching physical auction lots,” Kontos said.

He said July CPO (certified pre-owned) sales were down 7.5% from the prior month, but on a year-to-date basis, CPO sales are running 2.8% ahead of last year’s pace.