Used-vehicle values flat as auto interest rates rise in October

Auto lenders are tightening their risk parameters, a dynamic that could slow down sales for some market segments and contribute to higher depreciation as used-vehicle values declined in October. The Manheim Used Vehicle Value Index was flat year over year and down 2% month over month to 202.9 in October, according to Cox Automotive data published today. Rising auto loan rates could lead to further depreciation, Jeremy Robb , deputy chief economist at Cox Auto, told Auto Finance News . The Federal Reserve passed a 25-basis-point (bps) cut on Oct. 29, bringing the benchmark rate to a range of 3.75% to 4%. The average new-vehicle auto loan rate, however, increased 19 bps MoM in October to 9.6%, which followed a 32-bps MoM uptick in September to 9.41%, according to Cox Automotive data published Oct. 29. Rates were down 24 bps YoY in October and 17 bps YoY in September. Used-vehicle loan rates also rose to 14.24% in October, up 5 bps MoM and 28 bps YoY, which followed an increase of 25 bps MoM and 22 bps YoY in September, according to Cox. “The Fed is cutting rates, but if anything, auto rates have been going up a bit,” Robb said. “Part of that is related to risk from lenders.” The auto finance market is facing increased scrutiny following Tricolor Auto’s Chapter 7 bankruptcy filing on Sept. 10 and challenging market conditions. “Any time that [increased scrutiny] happens, you’re going to get some tightening from a risk standpoint,” Robb said. “That’s what is driving these loan rates; lenders are more risk-averse right now.” Tightened approval criteria, especially in lower credit sectors, could slow auto sales at some dealerships and, in turn, slow the process of dealers replenishing inventory, Robb said. “It affects demand from the consumer side, because either [lenders are] going to charge them a rate that's even higher, so consumers don't want to pay that rate, or they can't get approved anymore,” he said. “When you see demand slow down, you almost always see either depreciation pick up, or, if you're in a market at the time of year when you're seeing appreciation, you see that slow down." October price declines Wholesale used-vehicle prices typically decline in October as dealers slow down buying inventory ahead of winter, Robb said. Wholesale used-vehicle inventory sat at 28 days’ supply at the end of October, down one day YoY and up two days MoM, according to Cox. “In October, we saw a little bit higher depreciation [than usual], but almost all year long we have not seen normal depreciation,” Robb said, noting that depreciation rates came back into more normal ranges during the last week of the month. “If you aggregate it through the whole year, we're still sitting above where we normally sit at this time of year with how much vehicles have depreciated.” Prices fell across nearly all major market segments on a YoY basis in October, except for luxury vehicles and EVs, according to Cox. Compact car prices fell the most at 6.5% YoY. “SUVs were down 4% month over month, non-seasonally adjusted,” Robb said. “Compact cars were down a little bit less, but they had typically been down quite a bit as a segment.” EV values up 3.9% The Manheim Used Vehicle Value Index for EVs was up 3.9% YoY but down 3% MoM at 188.8, according to Cox. The non-EV index declined 0.1% YoY and 2.2% MoM to 145. Tracking values across 3-year-old used EVs, “we've seen those prices move up over the last month because a lot of used EVs were priced with the [federal] tax incentive in it, and now it's being lifted out,” Robb said. For the rest of the fourth quarter, depreciation is expected to be lower amid tighter supply and strong consumer demand, Robb said. Tax refunds are also projected to be higher next year, bolstering consumer and dealer demand. “Tax refunds should be better, then I would anticipate that the end of the year is pretty good, too, in the wholesale markets because people will get in front of that,” he said.

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Used-vehicle values flat as auto interest rates rise in October

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