Issue Date: Car Dealer Insider July 1, 2010, Posted On: 7/1/2010
Used vehicles financed in April, 2010, had an average retail price of more than $19,400, which is 61.7% of the average new vehicle financed that month, according to figures compiled by the Federal Reserve. Tom Kontos of ADESA Analytical Services notes that this put used vehicle retail prices above the 60% threshold ADESA has emphasized as a level that causes shoppers to opt for a new vehicle rather than a used vehicle. With used vehicle demand weakening as a result, used vehicle prices at wholesale could be expected to moderate from their peak in May. As Tom observes, this is what we saw in June, as average wholesale prices fell by over $250 per unit.
For franchised dealers this may be viewed as a welcome respite from general wholesale price escalation seen for approximately the last year and a half, although the flip side is that declining retail demand makes it harder to sell the vehicles despite their lower acquisition cost. Tight supplies of used vehicles can be expected to keep wholesale prices at relatively high levels for both buyers and sellers at auction and online in the months ahead.
Beware of reports that purport to compare warranty claims with vehicle quality. The slowdown in unit sales over the last few years has caused warranty claims rates to soar for reasons that have nothing to do with product quality or repair cost. Quite simply, dealers are fixing old cars with new money, according to Eric Arnum, and since there's less new money coming in, the ratio between claims and sales has risen all by itself. And the value of the warranty claims rate as a benchmark has fallen.