| The Used Vehicle Sales Crystal Ball |
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| Written by Joel Kennedy |
| Monday, 22 March 2010 00:00 |
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At the heart of any good used vehicle marketing plan is a thorough and frequent examination of the market, along with a solid forecast of where the market is heading. I will look at this from a couple of different perspectives that may help to inform your planning process. The first perspective will be based on information drawn from Manheim, a wholesale vehicle auction operation and well known source for data on used and new vehicle sales statistics. The second perspective will be based on data obtained from DebtMarket, an online marketplace that connects purchasers and sellers of loan portfolios (www.debtmarket.com). Many used vehicle finance lenders rely on liquidity in the secondary debt market to provide ongoing liquidity to their front-end originations. Hopefully, by examining these entirely unique points of view, you will gain some valuable insights to be used in forecasting your future used car sales.
Our first perspective, as indicated by Manheim’s latest monthly index (www.manheimconsulting.com), shows the market for used vehicles is strong and will continue to improve throughout the year. Wholesale used vehicle prices are on the rise, as evidenced by a 15.6 percent increase in January, 2010 compared to January, 2009. According to the index, the strong consumer demand for used vehicles is attributable to tax season marketing efforts and will continue, but perhaps at lower levels than initially anticipated. The report also mentions that the availability of credit is potentially more abundant than in the past, and may exceed consumer demand that is softer, relatively.
Our second perspective comes from Mike Sheridan, president of Debt Market (www.debtmarket.com). According to Mr. Sheridan, auto loan portfolio buyers are signaling continued concern around unemployment, particularly for the “near prime” segment. This concern is driving increased diligence on a per-deal basis, and buyers are heavily scrutinizing customer employment and income stipulations at the time of transfer. On the “sell” side, Sheridan mentioned that sellers are able to sell portfolios with slightly lower yields (coupon) than the prior highs. In spite of this heavy scrutiny, Sheridan is seeing more market entrants in terms of buyers and this is driving up asset prices.
When considering the macro and micro stats mentioned above, I believe it is safe to infer that the market for used cars will indeed continue to be strong and we will be seeing improved strengthening of floor traffic as the year progresses. While consumer demand is softer than anticipated, we will likely continue to see a strongfirst quarter for sales. From the finance side, subprime and near-prime finance companies will continue to find liquidity, provided that the quality of underlying customers holds up. New note purchasers entering the secondary market and the mention from Manheim that finance availability exceeds consumer demand, indicate to me that finance for subprime and near-prime buyers will be improving as the year continues.
Joel Kennedy is EVP / COO and co-founder of Pelican Resource Group, LLC (www.pelicanresourcegroup.com), an innovative lending and servicing partner currently operating in the Mid-Atlantic region. For more information please call 866-989-9688, ext. 702.
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