The Expert Podcast

Manheim Auto Auctions is one of the largest transaction sources of used vehicles in the country. This week, their CEO had a conference call discussing the automobile market, trends, and what's happening with automotive businesses across the country. Some interesting data came from this discussion that will help car buyers, insurers, consumers, and even dealerships understand the current market and what to expect in the future. Let's take a look at some of the slides from this presentation to understand what it means and what it might suggest for future automotive business trends.

On this used vehicle conference call, the first thing they discussed was consumer sentiment. Spending remains strong, with industries like apparel and travel showing that even though we have high interest rates and some inflationary pressure, people are still spending money. Consumer sentiment measurements show that sentiment is even improving, indicating an upward trend in consumer spending, despite complaints about inflation.

How does this affect vehicles? The basic overview is that retail supply is improving with new and used cars. Vehicle supply is improving now, and while new cars are not as difficult to supply since they had been in a bad state to begin with, inventory is getting better for new cars. The same is true for used cars.

Next, the focus shifted to wholesale vehicle values, which saw the largest annual decrease in history. While this may seem alarming, it’s important to note where the values were before the crash. Going back to 1997 and 2003, we see that the trend line had been fairly stable for nearly 30 years. However, a spike occurred in 2019, followed by a crash. Despite this drop, wholesale vehicle values are still above the long-term trend line, meaning the market is giving back large gains rather than falling below the average. Depreciation is happening across all vehicle ages—whether one-year-old, five-year-old, or ten-year-old cars, the depreciation trends are almost parallel.

An interesting aspect of the used vehicle market involves the mileage of the cars being sold, particularly rental vehicles. When Enterprise, Hertz, and Avis sell cars at auctions, these often come from fleet turn-ins. Historically, the mileage on rental cars was about 30,000 miles in 2003, then it increased to around 40,000 miles by 2009. This was because rental car companies prefer to keep cars until they are just out of warranty. By 2021, however, the mileage on these cars increased to 60,000, 70,000, or even 80,000 miles. This was a result of rental companies holding on to cars longer due to the shortage of new cars coming from manufacturers. While the mileage on rental vehicles is starting to decline, it is still higher than it was before 2021, with the current average at 55,000 miles. This higher mileage contributed to an increase in the mileage of used car inventory.

The rental car companies' decision to hold on to vehicles longer, rather than selling them at 40,000 miles, has had a noticeable impact. If you look at the inventory at various dealerships, you'll find rental vehicles with mileage in the range of 65,000 to 69,000 miles. This pattern is not a coincidence—it is a direct result of rental car companies selling their vehicles with higher mileage.

Regarding the top volume vehicles, the 2020 Toyota Corolla, 2021 Nissan Altima, and 2020 Ford Explorer were among the most commonly sold vehicles. The transaction prices for these vehicles ranged mostly in the teens, with the Ford Explorer being the exception, which sold closer to $30,000. Most of the other vehicles sold in the $15,000 to $17,000 range, with a few exceptions like a Volvo in the $34,000 range.

Looking ahead, Manheim's outlook suggests another down year, with values possibly decreasing by around four percent. However, this provides a good overview of the current state of the used car market and where values might go, coming from a company with significant insight into the used car market. Manheim has the most insight, as they are transacting more used cars than anyone else, with vehicles coming from dealers, consumers, and fleets. They have a clear view of the trends, what models are in higher demand, and who is buying and selling.