Mainheim Used Vehicle Index Records First YoY Decline in Two Years

Manheim (used vehicle auction/remarketing company) released its used vehicle price index this morning. The index was 112, down 0.4% versus the prior year period. Sequentially, the index edged up. But it marked the first year-over-year decline since October of 2004, which Tom Webb, Manheim’s Chief Economist said was due, in part, to the comparison being made against a very strong pricing environment last year.

Mr. Webb had a number of interesting comments in his commentary this month, most noteworthy (I think) him pointing out that “the biggest benefit to used vehicle pricing will come from the reduction of carryover ’06 model-year vehicles.” He pointed to Ford (F) starting November with only ~24% of their dealer inventory consisting of “old model” 2006 inventory versus historic norms of ~one-third. He also said General Motor’s (GM) carryover stock was 20% (“old model” versus new) while Chrysler (DCX) will still be plagued with over half of their inventory still being 06 model year vehicles.

Actually, the excessive supply of old model year vehicles might actually play into Chrysler’s hands in gaining some market share in the coming months. I still remember in 2003 how Sonic (SAH) had appropriately managed their inventory, primarily ordering new model year vehicles not wanting to get stuck with a bunch of old vehicles. Sadly, these were the vehicles the automakers put all of the incentives on to clear the lots, and so they actually lost sales and share.

In the same manner, I think Chrysler dealers may therefore have a competitive advantage versus some of their domestic “foes.” When faced with the decision of paying a couple thousand less for an 06 versus 07 model year vehicle, consumers usually like the “deal” they get on the 06. Unfortunately, the “benefit” likely to be achieved over the next few months came at a pretty high expense (excessive dealer inventory carrying costs and Chrysler now selling “discounted” 06 vehicles versus the more profitable “new model” year vehicles being sold by GM and Ford).

Mr. Webb also said: “There has been an excessive amount of hand-wringing in the industry over the state of retail used vehicle sales. We suspect that the reported unit declines are exaggerated.” I agree.