Now this can appear tricky, so bear with me. Pre-COVID-19 retail and wholesale prices were running high in the used vehicle market, and the economy was very strong. Look at the graph at around week 12–13, which was in mid-March. Then see the big drop in the wholesale market from the COVID-19 impact but a less steep one in the retail market.
Where are we at now? Dealers say wholesale prices are sky high. Well, essentially wholesale prices have recovered to the same level they were before COVID-19 (see yellow arrow below) in a very short period. And they are climbing a bit higher, which we would expect during the prime selling season. However, retail prices have rebounded a bit slower but are making their way back to pre-COVID-19 levels (see red arrow below), though they did not drop as far — but sales volume sure did.
Recently, we watched some closed OVE sales, and those vehicles were going for 105–107% of average MMR. Now these were very attractive off-lease units with CRs of 3.5 or better. So, we heard dealers say, here we go again paying well over average MMR for cars. I agree, wholesale prices seem high relative to the deep dark chasm we saw in April and the first part of May but still within the range of pre-COVID-19 levels.
What does the future hold?
See the dotted line, which is last year’s trend. Notice the wholesale price index trended well above retail all last year. This is normal in a strong market, at least until the fourth quarter when wholesale prices drop much more severely than retail trends. Why? Seasonality for many markets where dealers lower inventories and hunker down for the winter and reduce wholesale purchases. But maybe that won’t happen this year with a recovering economy. During the pandemic there were a lot of lease extensions, so more supply is expected in the early fall. At that point, what impact will daily rental fleet volumes have on the wholesale supply?
New car supply is struggling due to plant shutdowns. And many consumers have cash to put down on a car (perhaps from their stimulus check) because they had no place to spend it while we were all watching every series Netflix secured the rights to since its inception.
Here is what we do know: No matter how strong used car demand is, buying the right car for your market, especially if you must pay at auction, takes the most current data you can access. Guidebooks have always been looking through the rearview mirror for wholesale transactions. And the mirror is going to be foggy at best for some time to come. Knowing what you can sell a car for before you decide what to pay for it will be critical. Referencing as many demand metrics like trending Market Days Supply and Autotrader Scarcity Index can avoid costly mistakes. Live auctions have been idle for months. No one has been able to hang out in the lanes and use the “gut” strategy.
Humor me while I get philosophical here. Aristotle said, “You are what you repeatedly do. Excellence is not an act, but a habit.” Study the wholesale market every day. The data is now available to make you a successful investor with every purchase — no need to be a speculator hoping to hit a few homeruns. Just hit more singles and the runs will come.
Oh, by the way, I get to represent auction acquisition software called Stockwave powered by vAuto. Stockwave continually aggregates all the wholesale data available in the industry into one place with a lightbulb that resides next to the listing. Ask a fellow colleague who uses Stockwave if it can help you form the habits that will make you “excellent” in the wholesale space. We would love to give you a quick online demo. Let us know when.