The latest data reveals a downward trend in used-car prices, signaling good news for prospective car buyers. However, this development poses challenges for car manufacturers.
Manheim Used Vehicle Value Index Reports Continuous Decline
The Manheim Used Vehicle Value Index, a widely followed indicator of wholesale used-vehicle pricing, has released its latest report. The data for July indicates a significant decrease, with a reading of 211.7, marking an 11.6% decline compared to the previous year.
Prolonged Period of Price Drops
This decline in prices has been an ongoing trend for the past 11 months. In six of these months, prices have decreased by double-digit percentages. Despite this, prices still remain around 38% higher than those recorded at the end of 2019, prior to the onset of the Covid-19 pandemic. The pandemic had a massive impact on auto production, leading to a decrease in supply and subsequent price hikes.
Return to Pre-Pandemic Levels Still Not Achieved
July 2020 witnessed the Manheim Index reaching new heights, with double-digit percentage increases sustained for 22 consecutive months. However, the recent report suggests a regression to the index value last observed in April 2021. Cox Automotive’s Senior Manager of Economic and Industry Insights, Chris Frey, acknowledges this development, asserting that while used retail inventory is slowly recovering, robust demand in the summer months may prevent a significant decline in wholesale prices until December.
Impact on Auto Stocks
Lower used-car prices exert pressure on new-car prices, posing a challenge for major industry players such as General Motors (GM), Ford Motor (F), and Stellantis (STLA). However, the relative stability expected until December can be seen as a positive outcome.
The Changing Prices of Cars in the U.S.
According to Kelly Blue Book, the average transaction price for a new car in the U.S. is now around $49,000. In comparison, the average price of a used car is approximately $27,000. These figures have experienced significant growth since the end of 2019 when the average prices were roughly $39,000 for new cars and around $20,000 for used cars.
Impact on Stocks
In Monday’s trading, Ford stock has declined by 0.3%, while Stellantis and GM shares have seen an increase of 0.7% and 0.8%, respectively. The broader market has also shown positive movement with the S&P 500 up by 0.7% and the Dow Jones Industrial Average adding around 1.1%.
Pricing Concerns and Stock Performance
The recent concerns about rising prices have already affected share prices. Over the past month, GM and Ford shares have decreased by approximately 7% and 14%, respectively. On the other hand, Stellantis shares have experienced growth of about 10% due to strong earnings. During the same period, the S&P 500 has shown a modest increase of around 3%.
Relative Valuation
When it comes to relative valuation, Stellantis stock currently holds the position of being the cheapest within the group. With a trading price approximately 3.5 times estimated 2024 earnings, it stands in contrast to Ford and GM shares, which trade at 6.8 times and 5.4 times, respectively.
Potential Impact on Auto-Parts Stocks
The movement of auto-parts stocks on Monday indicates a response to changing prices. Lower prices can potentially drive higher sales volumes for both new and used cars. Over the past few months, Americans have been buying cars at an annual rate of around 15 million units, which is slightly lower than the pre-pandemic number of approximately 17 million units. This increase in sales volume translates to a greater demand for parts from suppliers.
Shares of Lear (LEA) and Gentex (GNTX) have both shown growth of about 1.7% on Monday, reflecting the positive market sentiment towards auto-parts stocks.
Considerations for Buyers
While falling prices may seem enticing for buyers, they can also create a sense of hesitation. The prospect of even lower prices in the near future may lead some potential buyers to wait for a better deal before making a purchase.
