What follows is Tom Kontos' and ADESA Analytical Services' monthly analysis of the current used vehicle market conditions and outlook.  

As anticipated in last month's commentary, average wholesale prices resumed their firming pattern in May, after a hiatus in April. Not only were average prices up on a sequential (i.e., month-over-month) basis, but they were up on a year-over-year basis for the first time since December 2007 (which happens to coincide with when the recession officially started). Average auction prices were a few dollars short of the $10,000 mark last reached in April 2008 before $4 gas caused wholesale prices for SUVs and pickups to implode. 

Another piece of good news is that franchised and independent dealers registered month-over-month and year-over year gains in used vehicle sales for the second month in a row. Independent dealers had a particularly good month, registering double-digit increases in sales. Certified used vehicle sales by franchised dealers were also up month/month, though down somewhat from last May's record.  

With used vehicles remaining a relative bargain for consumers who could afford to buy a new vehicle, and both incoming and inventoried wholesale vehicle supply tapering, the wholesale price recovery looks to continue in the months ahead. This outlook seems even more plausible in light of Chrysler's announcement that new vehicle inventories for "rejected" dealers will be redistributed to "surviving" Chrysler dealers. Had those units (estimated to number 28,000) entered the wholesale channel in a concentrated fashion they may have caused some downward pressure on Chrysler/Dodge/Jeep products, which have been holding up well at auction.  

Also worth noting is some recent good news on the economy in the form of a rise in the Institute of Supply Management (ISM) Purchasing Managers Index (PMI)-one of the many economic indicators we track. The ISM/PMI index, which is on a 100-point scale, was 42.8 in May. This marks the first time the index was above the recession warning level of 41.2 since September 2008, thereby indicating an expansion of the overall economy. This bodes well for our outlook that the economy will mark an end to its longest recession since the Great Depression in the second half of the year.  

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Details

According to ADESA Analytical Services' monthly analysis of Wholesale Used Vehicle Prices by Vehicle Model Class, wholesale used vehicle prices in May averaged $9,976-a 1.4 percent increase from April and up 3.5 percent from May 2008.  

As mentioned last month, full-size SUVs and pickups are showing large year-over-year price gains (25.1 percent and 21.1 percent year/year in May, respectively) because comparable year-ago prices were driven down so low by last year's gas price run-up to over $4 a gallon. Midsize and luxury SUVs and full-size cars also had major price gains over last year. Conversely, average prices for compact cars were down 13.2 percent year/year.  

All major seller types showed month/month and year/year price gains, with average prices for vehicles sold in manufacturer sales up 2.3 percent year-over-year, fleet/lease sales prices up 2.1 percent and dealer consignment sales prices up 2.2 percent.  

ADESA Analytical Services estimates that auction industry inventory levels stood at approximately 37 days at the end of May-much lower than the 73 days around 2008 year-end and at parity with last May. The working down of inventories will continue to put upward pressure on prices in light of still-strong used vehicle demand.  

Based on data from CNW Marketing/Research, retail used vehicle sales in May were up on a year-over-year basis by 6 percent for franchised dealers, 10 percent for independent dealers and 7.9 percent overall. Certified used vehicle sales in May were up 8.9 percent over April, though down by 11.3 percent from last May's all-time high, based on Autodata figures.