In the year since that last Manheim Used Car Market Report was published there has been a lot of change. The new car market in the US has started to show more positive signs. After falling to a 27-year low in 2009, new vehicle sales increased 11%, or by more than 1.1 million units, in 2010 to 11.6 million. However, that still left sales at their second-lowest level in 28 years

The increase was driven by a 22% jump in fleet purchases and a 9% rise in retail volume, which led the fleet share of the new vehicle market to rise to 18%, its highest level since 2007, as legitimate business needs prompted fleets to return to acquisitions. Manheim says that the number of commercial vehicles in service stabilised following rapid de-fleeting in 2009. Along with moves to extend average vehicle service life to as many as 85,000 miles this had lowered commercial fleet purchases to volumes not seen in more than a decade.

In 2010 corporate employment showed only slight gains but fleet managers had to replace very high-mileage vehicles and, in some cases, also took advantage of strong used vehicle prices to refresh their fleets. As a result, commercial fleets bought 33% more vehicles in 2010 than in 2009. Although this marked a reversal following two years of lower purchases, sales to commercial fleets were still well below the annual demand of the past decade and Manheim says that the high fleet share in 2010 was not the result of high fleet sales, but rather low retail sales.

Looking to future buying trends in the commercial fleet market, Manheim says that fleets remain focused on buying the right vehicle for each use and adds that as manufacturers improve the features, performance, and quality of smaller cars and crossovers, drivers have been less resistant to giving up bigger vehicles.

It also said that rising gasoline prices have led fleet managers to sharpen their focus on fuel economy in their second-cycle purchases and are also focusing more on using telematics to monitor driver behaviour, prevent accidents, and decrease fuel consumption.

It also says that some fleet managers are paying more attention to alternative fuels, including compressed natural gas (CNG) and biodiesel. General Motors has indicated that it will increase production of CNG-capable vans to meet rising interest from managers operating centrally fuelled fleets.

Meanwhile electric vehicles are entering the automotive mainstream. Although volumes are still small, commercial and government fleets are better suited to take advantage of electric vehicles than is the general public, for example by being able to spread the infrastructure expense of recharging facilities over more units.

It added that the biggest obstacle to electric vehicles remains their high prices and unpredictable residual values, especially as new models with improved technology are introduced over the next five years.

Manheim also noted that domestic automakers dominated the commercial fleet segment. In 2010, as in years prior, General Motors, Ford, and Chrysler accounted for more than 90% of total sales. The Detroit 3 share of the government fleet market is even larger.

Also included in the UCMR report were details of a rise in commercial Vehicle Registrations as large fleets update their equipment. Total registrations for new Class 3 to Class 8 trucks increased 9.6% to more than 269,000 through September 2010. At the same time, registrations of used commercial vehicles rose 18.7% to more than 524,000 units, according to R.L. Polk. The increase in used commercial vehicle registrations reflects an improving economic climate and the desire of companies to upgrade their equipment to newer models. As large fleet owners bought new vehicles, smaller fleet companies and independent owner-operators have been able to find clean, used equipment in heavy truck auctions.

Auction Volumes Fall for Third Straight Year

Looking at used vehicle sales, Manheim reports a 4% rise in 2010 to just under 37 million units.

Total retail used vehicle transactions were composed of:

• Franchised dealer sales (12.8 million, unchanged from 2009),

• Independent dealer sales (13.0 million, up from 11.7 million in 2009),

• Private party sales (11.1 million, up from 11 million in 2009).

Wholesale used vehicle transactions totalled more than 19 million in 2010, of which 8.4 million of the transactions were handled by National Auto Auction Association  (NAAA) member auctions.

Turning to the auction industry, Manheim says that after declining for three consecutive years, auction volumes in 2010 were estimated to be 12% below 2007’s level. It adds that facing the loss of more than 300,000 off-lease units in both 2011 and 2012, the auction industry will continue to face a tough environment from a volume standpoint. While dealer consignment volumes are on the rise, low new vehicle sales over the past several years equates to low used vehicle production.

Wholesale Used Vehicle Prices Reach Record High in 2010

Wholesale used vehicle prices (on a mix-, mileage-, and seasonally-adjusted basis) rose in December to cap off a second year of exceptionally strong pricing. December’s gain meant that prices rose 5.9% for the year, and put the Manheim Used Vehicle Value Index at a record 124.4 level.

On an annual average basis, the increase in wholesale prices in 2010 (+7.4%) and 2009 (+5.1%) were the largest and the second-largest in the Index’s 16-year history. Of course, they came on the heels of the largest annual decline in wholesale pricing (-6.3% in 2008).

Relative price changes for the various market classes, on an annual average basis, were closely aligned. Vans and pickups were the strongest segments. Midsize and luxury cars lagged behind the overall market, but each still had a gain in excess of 5%.

Auction Prices Rise Despite Higher Miles

Focusing on commercial fleets, Manheim reports that they remarketed approximately the same number of units overall, and through auctions, in 2010 as they did in 2009. As commercial fleets reduced units in service in 2009, it temporarily boosted their remarketing volumes. In 2010, fleets remarketed 730,000 vehicles and accounted for 9% of auction transactions.

Auction prices actually rose despite higher miles. In 2010, the average end-of-service midsize fleet car sold at auction had 68,000 miles, up from 66,000 in 2009 and 64,000 in 2008. Average mileage on vans and pickups coming out of fleet is generally well over 100,000 miles.

Mileage-adjusted auction prices for end-of-service fleet units were strong throughout 2010. Mileage- and seasonally-adjusted prices for end-of-service midsize fleet cars reached an all-time high in the first half of 2010, and came close to reaching that level again in the fourth quarter. A similar index for end-of-service pickup trucks reached an all-time high in the second half of 2010.

The level of employee purchases of company vehicles varied from one business to another in 2010; but in total, smaller staffs and economic uncertainty kept intra-company disposals of passenger vehicles below historic levels. Manheim notes that although many fleet managers view employee sales as the most economical and efficient means to remarket end-of-service units, auctions often proved to be the most profitable and efficient remarketing channel in 2010 as the strong pricing environment often meant that units were sold well above floor prices.

Technology shapes buying behaviour

Last year saw technology increasingly affect the ways vehicles are remarketed and how buyers and sellers interact with each other.

Manheim has noted that more than 75% of new and used vehicle buyers now research vehicles on the internet before deciding what to buy. Increasingly, these consumers go online not only to decide what – and where – to buy, but also to get feedback

from both friends and strangers prior to making a purchasing decision. Studies show that consumers trust the opinions and advice of friends and other consumers more than company advertising

The firm says that online activity continued to accelerate in 2010. More than 4 million vehicles have been remarketed through Manheim online channels since they were introduced in 1996. OVE.com and Simulcast represent 21% of total Manheim used vehicle transactions

Manheim adds that vehicle consignors and dealers are recognising the value of using strategies to sell and buy vehicles using the internet and physical locations. Consignors aim to shorten the time to sale, and dealers find the vehicles they need by accessing the large inventory in multiple live and online sales.

In the words of Dean Eisner, president and CEO of Manheim: ‘The most challenging obstacle to unlocking the full potential of remarketing in the future is giving dealers the confidence to buy vehicles without actually inspecting them. When all transactions occurred in the auction lanes, dealers perfected their skills at valuing each vehicle. But in the virtual world, our business has to serve as the conduit of confidence between the buyer and seller.’

The firm underlined the importance of detailed and uniform inspections and condition reports, which benefit sellers as much as buyers, and highlighted how this year the NAAA adopted standards with respect to inspections and condition reports, arbitration and certification. This now means that dealers can count on the accuracy and comparability of condition reports and focus more on the vehicles they need, not the channel through which those vehicles are being sold.

The firm also outlined its intentions to improve auction processes to improve customer performance, for example reducing days to sale while getting new inventory listed faster.

Manheim says its goal is to reduce the time to sell by as much as a third by rethinking and redesigning many of the functions performed at the auctions. Because consignors can immediately place their vehicles in an online channel rather than having to wait until their next scheduled live event, this not only lowers holding costs but also generates cash faster.

Fleet Vehicles Sell Well in Manheim Online Channels

Manheim says that fleet vehicles have been selling strongly in Manheim Online Channels. In 2010, fleet management companies participated in approximately 1,000 Special Online Event Sales in addition to their normal in-lane Simulcast sales. It adds that because these and other auction sales combine vehicles from many companies, there is enough product variety to attract both independent and franchised dealers.

Approximately 44% of commercial fleet vehicles were remarketed through NAAA-member auctions in 2010. Independent used vehicle dealers dominate the lanes where fleet vehicles are for sale. These lower-priced units are ideal for dealers concentrating in the subprime and Buy-Here, Pay-Here markets.

Although the online buyer has been somewhat slower to accept bidding on high-mileage units without physically inspecting them, commercial fleet vehicles give the buyer assurance that the units have been properly maintained over their service lives.

Government Fleets Have Success with Online Auctions

Government fleets are also having success with online auctions, says Manheim. Such vehicles are typically remarketed directly to the public in local sales and to both dealers and the public at auction locations.

The single-largest seller is the General Services Administration (GSA), which manages fleets for many federal agencies. The GSA uses the services of major auction operators like Manheim. Vehicle information is generally posted on the auction and GSA websites weeks prior to the sale. GSA vehicles cover the full range of passenger cars and light trucks.

Since GSA has a solid and long-established reputation as a seller, online bidders buy a high percentage of them. In 2010, 52% of GSA vehicles sold by Manheim were bought online, up slightly from 51% in 2009.

Vehicles sold by local and state governments are often near the end of their useful lives, with more than 100,000 miles. Nevertheless, many dealers, taxi owners, and even some private individuals will bid on these low-priced units, especially out-of-service police vehicles, at auction.