Used car wholesale values kept sliding through October, Carvana’s value is absolutely tanking, Europe’s expected to import a ton of Chinese-made cars. All this and more in today’s issue of The Morning Dump.
Welcome to The Morning Dump, bite-sized stories corralled into a single article for your morning perusal. If your morning coffee’s working a little too well, pull up a throne and have a gander at the best of the rest of yesterday.
Used Car Wholesale Values Drop 10.6 Percent Year-Over-Year, Per Maheim
Used car wholesale values continue to drop with the latest Manheim Index update showing decline through October, down 4.5 points from last month to sit at 200 flat — that’s down 10.6 percent from last October’s 223.7. In case you’re not a frequent reader of The Morning Dump, Manheim is a massive wholesale auction house that shifts more than five million cars a year, so it has a ton of data on wholesale car values. While wholesale trends don’t always directly correlate to retail trends, the Manheim Index is a useful leading indicator of where the car market is going.
While, for some, it’s good to hear that the Index is now sitting at 200 points flat, there are a few things to keep in mind. On the negative side, the last truly normal month before the fan hit the shit was February 2020, with the index clocking in at 143.5, so we still have a long way to go before things return to anything resembling “normal.” On the plus side, the index is down from peak January silliness of 236.3, so the slow return to no longer screaming is happening. In addition, pricing continues to fall behind what Manheim expects.
Over the month of October, daily MMR Retention, which is the average difference in price relative to current MMR, averaged 98.2%, meaning market prices were below MMR values.
MMR is basically Manheim’s version of Kelley Blue Book or NADA Guides – a way of valuing used cars. So what does all of this mean? Well, every dealer who bought used inventory at the top of the market and let it sit on the lot with high profit margins is likely not thrilled right now. Get ready for loads of write-downs heading into year-end.
Oh, and from where I’m standing, I’d think used car prices are only going to continue to drop as new car supply increases. Speaking of new car supply, Manheim has some lovely insights into the state of the market.
October’s total new-light-vehicle sales were up 9.6% year over year, with one less selling day than in October 2021. By volume, October new-vehicle sales were up 2.9% from September. The October sales pace, or seasonally adjusted annual rate (SAAR), came in at 14.9 million, a 12.7% increase from last year’s 13.2 million and up 9.8% from September’s 13.6 million pace.
Wow, a 14.9 million SAAR pace. After years of shortages and production cuts, don’t you just love to see it? What’s more, these sales aren’t just for retail customers. Approximately 2.1 million of those vehicles are expected to go into government fleets, corporate fleets, rental fleets, and the hands of other new fleet buyers. This is fairly critical when it comes to the supply of late-model used vehicles and Manheim’s already seeing ex-rental car values decline by four percent month-over-month and 5.2 percent year-over-year. In addition, average mileage on these “rental-risk” units is down 6.9 percent year-over-year. Nice.
If you don’t need to buy a car right away and are just looking to add to your fleet rather than replace an existing vehicle, I’d think it might be best to wait things out for another few months. We’re still quite a way from used car prices approaching pre-pandemic levels, so I’d hope for further declines in used car wholesale values over the next few quarters. However, if you need to buy a used car relatively soon and are looking at buying from a dealer, be sure to weigh reduced prices against interest rates. One good interest rate hike could effectively cancel out month-over-month price reductions, plus as used car values decline, so does the value of any car you’re trying to sell. Come to think of it, we have a whole podcast episode on this subject that you’ll probably want to check out.
Carvana Appears To Be Falling Fast
Speaking of used cars, Bloomberg reports that used car retailer Carvana is cratering in the marketplace, quickly losing value as reality continues to bite.
Shares of the auto retailer have sunk more than 53 percent in the two trading days since the company reported disappointing third-quarter results late on Thursday, bringing its once-lofty market capitalization down to about $1.4 billion from $2.6 billion before the earnings miss. That’s a far cry from the $60 billion valuation the firm commanded last year.
Between falling inventory values, interest rate hikes, and some apparently questionable business practices, I’m not terribly surprised to hear of Carvana’s valuation tanking. While the general state of the used car market means that fiscal year 2022 will be a rocky one for dealerships, Carvana certainly hasn’t helped its cause by making several states hate the company. If you want to learn more about Carvana’s dealer license suspensions and criminal charges, check out this excellent piece Mercedes Streeter did on the used car vending machine chain.
Bosch To Pay $25M Dieselgate Settlement
Oh, you thought Dieselgate was over already? Nope. The emissions cheating saga continues as Reuters reports that Bosch has agreed to pay a $25M settlement over California’s own diesel emissions probe.
The settlement, which is subject to court approval, resolves allegations Bosch participated in misconduct by providing hardware, software, and software programming or calibration services to Volkswagen and Fiat Chrysler – now known as Stellantis – “when it knew or should have known that these auto manufacturers were violating environmental and consumer protection laws,” California Attorney General Rob Bonta said.
Bosch confirmed the settlement but said it “neither acknowledges the validity of the claims brought forward, nor does it concede any liability.”
Under the settlement, Bosch must disclose to California if it concludes a manufacturer will use or has used software to evade emissions rules.
Well, that last clause just made things more interesting. It could open up a can of worms for any automaker that’s used Bosch-supplied equipment to squeak through laboratory emissions testing. If I were a manufacturer who engaged in a bit of dodgy emissions certification, I’d be quaking in my boots right now.
Europe Expected To Import A Ton Of Chinese Cars
Despite some pleas for more protectionist vehicle trade policy, Automotive News Europe reports that the analysts at PwC expect 800,000 Chinese-built cars to be sold in Europe by 2025.
Of the potential 800,000 Chinese-built cars, about 330,000 would be from Western automakers such as Tesla, BMW and Renault Group, all of which currently export EVs to Europe from China, including the Tesla Model 3, the BMW iX3 and the Dacia Spring.
“Chinese [automakers] are now seeking to consolidate their foothold in Europe,” PwC said. “Compared to their previous market entries in the past decade, the playing field has now been significantly leveled.”
It’s true, Chinese brands finally seem to be making waves in Europe. MG is already gaining a foothold with affordable, sensible cars that seem positioned for the average person, while Polestar has benefited from affiliation with Volvo. Perhaps more interesting is that if this forecast comes true, Europe could go from being a net exporter of new cars to being a net importer of new cars in just three short years.
Whelp, time to drop the lid on today’s edition of The Morning Dump. With used car prices continuing to slide, I bet we all have our eye on a specific make and model of car we want once depreciation sets in again. Perhaps you plan on picking up a cheap Nissan Leaf for around-town use, or maybe you want a gently-used Ford F-150 for towing but don’t want to pay through the nose for it. Whatever the case, I’d love to know what you really want to buy once all this craziness is over.
Lead photo credit: “Car Dealership on Western Ave” by David Hilowitz is licensed under CC BY 2.0.