The used vehicle market continued to experience softness in October as it did in September. The question is whether this is a seasonal and Cash-for-Clunkers induced calm before a late-2009/early-2010 surge in used vehicle demand or whether this hiatus will last longer.

As anticipated in last month's commentary, wholesale used vehicle prices moderated according to their usual seasonal pattern. However, average prices fell a bit more than their typical September-October drop, indicating that dealers continued to be cautious about stocking their used car lots - especially in light of weak retail demand during the month.

Economic indicators, as well as public and expert opinions, generally concur that the recession is over and, though high unemployment remains a concern, at least a mild recovery is underway. This should strengthen vehicle demand in the weeks and months ahead. At the same time, used vehicle supplies will be tight due to low levels of new vehicle trade-ins, depressed rental vehicle sales, and declining off-lease and repo volumes. These supply-demand conditions will support used vehicle prices as we enter this year's Thanksgiving-Christmas holiday and next year's tax seasons, creating a more favorable environment for consignors who need to sell vehicles before year-end.

Details

According to ADESA Analytical Services' monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class, wholesale used vehicle prices in October averaged $9,447 -- a 3 percent decrease from September but a 9.5 percent increase from last year's abysmal October results. Dealers seemed to bid somewhat more aggressively for trucks than cars as they took a highly selective posture on their auction purchases during the month.

By seller type, average prices in October were similarly down sequentially but up annually.  Manufacturers registered a 2.3 percent month-over-month price drop but a 28.2 percent year-over-year rise. Fleet/lease consignors experienced a 6 percent sequential price decrease and a 12.7 percent annual increase. Dealers saw a 0.3 percent average price decline versus September and a 15.3 percent uptick versus October 2008.

ADESA Analytical Services estimates that auction industry inventory levels stood at 35 days at the end of October. This is up from the year's bottom of 32 days earlier in the month, but much lower than the 66 days registered in the same week last year-an indication of tight supplies. Conversion rates (units sold as a percentage of units offered), although down from peak levels earlier this year, continue to hover in the healthy 60 percent range.

Based on data from CNW Marketing/Research, retail used vehicle sales in October were down by around 40 percent on a month-over-month basis for both franchised and independent dealers -- indicating a second month of C4C "hangover" as well as typical seasonal softening. Hopefully, October's relatively strong new vehicle SAAR of over 10 million units is an indication that the hangover is passed. Certified used vehicle sales in October were up 3.2 percent versus September, although they were down by 4 percent compared to October 2008.