"Prices of cars and trucks sold at auctions around the US jumped another 3.9% in November from October, according to Manheim, the largest auto auction operator in the US.
These crazy prices have now spiked by 44% from the already sky-high levels in November 2020.
... In October, prices had spiked month-to-month by the most ever (9.2%).
... Prices in the Manheim Used Vehicle Value Index are adjusted for the mix of models and mileage, and for seasonal factors.
The unadjusted price increase in November was 1.9% month-to-month and 44% year-over-year.
... everyone knows this crazy price spike cannot go on forever.
... Compared to the old-normal in November 2019, prices have now spiked by a mind-boggling 67% ...
... The cause is buying behavior – psychology.
Buying vehicles is the ultimate discretionary purchase for most Americans:
They trade in one perfectly good but older vehicle for a newer one, though they might as well drive the older vehicle for another year or two ...
They have done this during the Financial Crisis, and dealer lots were overflowing with cars.
But now, the whole psychology has changed, and price doesn’t matter anymore.
Consumers are just paying whatever, and auto dealers know it, and so they’re paying whatever at the auction,
confident that they can sell those units with super-high markups to these crazy retail buyers out there.
... There is one exception to the discretionary nature of vehicle purchases: commercial vehicles.
Used vans – mostly cargo vans needed for e-commerce which is booming, and for the trades, such as plumbers and electricians – are in a special situation.
Companies are having the hardest time obtaining new vans as automakers have de-prioritized building commercial vans during the integrated chip shortage to build high-end models to maximize revenues and profits.
Ford’s Transit cargo vans dominate that market.
Ford said last week that its Transit sales plunged by 54% year-over-year in November, and by 21% for the first 11 months of the year, as it shifted production to models with higher price tags and profit margins.
In 2019, Ford sold 153,868 Transit vans.
In 2021, it’s on track to sell only 96,000, down 37% from 2019.
Hence the mad scramble to buy used cargo vans.
Unlike retail buyers of cars, SUVs, and pickups, companies don’t consider these purchases discretionary.
... auction prices of used vans in November spiked by 57% year-over-year.
Also note the 46% price spikes in sedans (compact and midsize), the vehicles that Ford, GM, and Fiat Chrysler, under pressure from Wall Street, have totally abandoned by killing their sedan models.
Total used vehicle sales – these wholesales plus retail sales – in November were roughly flat with October and declined 2% from a year ago
to a Seasonally Adjusted Annual Rate (SAAR) of sales of 37.2 million used vehicles, according to estimates by Cox Automotive, which owns Manheim.
In a good year, the industry gets to nudge the 40-million line.
Retail sales of used vehicles, at 20.4 million SAAR in November, were flat with October and up about 1% from a year ago.
... Supply of retail vehicles on dealer lots jumped from 39 days in October to 49 days in November, when 44 days is normal, the first month above normal supply all year.
Supply of wholesale units to be sold at auction jumped from 18 days in October to 29 days in November when 23 days is normal, also the first month all year when supply was above normal.
We’ll see a month from now how the supply scenario washes out.
These crazy wholesale prices here take a few months to filter into the used-vehicle retail prices of the Consumer Price Index.
The October CPI for used vehicles – we’ll get the November CPI this week – still reflects the summer pause of auction prices after the second great spike,
and they’re now setting up for the third great spike that wholesale prices are already experiencing"
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