Forecast: Used-Vehicle Values Expected to Normalize in 2023 After Record Volatility

Staff Report

Friday, January 27th, 2023

Following record increases in 2021, the Manheim Used Vehicle Value Index (MUVVI) ended 2022 at 219.3, a slight increase from November due to the seasonal adjustment, but down 14.9% year over year. This was the largest decline within one year in the series' history.

On the non-adjusted side, the price change in December was a decline of 1.9% compared to November, moving the unadjusted average price down 13.1% year over year. Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) increased 0.8% in December from November.


"It's undeniable that 2022 culminates with unprecedented declines in the MUVVI, but it's important to look at the bigger picture," said Cox Automotive Chief Economist Jonathan Smoke. "These last three years have been extremely volatile for the market, and these declines follow record increases. In December 2021, we were up 47% year over year. The pre-pandemic levels will likely never return, but all indicators point to reaching equilibrium in the second half of 2023." 

Manheim Market Report Values See Declines
In December, Manheim Market Report (MMR) values saw larger-than-normal declines, culminating in a 2.2% total decline in the Three-Year-Old Index over the last four weeks. MMR is a valuation tool that tens of thousands of vehicle consignors and dealers use to assess millions of trade-ins each month. It is designed to be highly stable and avoid overreacting to short-term market ups and downs to provide an accurate measure of vehicle valuations regardless of market conditions.

Over the month of December, daily MMR Retention, which is the average difference in price relative to the current MMR, averaged 98.6%, meaning market prices were below MMR values. The average daily sales conversion rate increased to 50.7% but remained below normal for the time of year. For example, the daily sales conversion rate averaged 52.2% in December 2019. The lower conversion rate indicated that the month saw buyers with more bargaining power than what is typically seen for this time of year.

All eight major market segments once again saw seasonally adjusted prices that were lower year over year in December. Vans had the smallest decline at 12.0%, followed by pickups, sports cars, and compact cars at 12.2%, 12.6%, and 13.5%, respectively. The other four segments' prices were lower than the industry. Compared to November, two of the eight major segments' performances were down. Midsize cars lost 0.3%, and compact cars lost 0.2%. Five of the remaining six segments were up between 0.4% and 2.2%.

Used Retail Vehicle Sales Decline in December, Harken Back to 2021 Patterns
Leveraging a same-store set of dealerships selected by Dealertrack to represent the country, initial estimates are that used retail sales declined 7% in December from November and that used retail sales were down 10% year over year, mirroring November's performance.

Using estimates of used retail days' supply based on vAuto data, December ended at 52 days' supply, down from 54 days at the end of November but slightly higher than how December 2021 ended at 51 days. Leveraging Manheim sales and inventory data, wholesale supply is estimated to have ended December at 31 days, up two days from the end of November and up five days from December 2021's 26 days.

Last month's total new-light-vehicle sales were up 4.9% year over year, with the same number of selling days as December 2021. By volume, December new-vehicle sales were up 12.2% from November. The December sales pace, or seasonally adjusted annual rate (SAAR), came in at 13.3 million, a 4.7% increase from 2021's 12.7 million but down 6.3% from November's revised 14.2 million pace.

Combined sales into large rental, commercial, and government fleets were up 47% year over year in December. Sales into rental fleets were up 100% year over year, sales into commercial fleets were up 29%, and sales into government fleets were up 13%. Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be up 1.1% year over year, leading to an estimated retail SAAR of 12.0 million, down 0.5 million from last month's pace, or down 4.7%, but up 0.8 million from last year, or 7.2%. The fleet share of 14.2% was down 1.5% from last month and was up 3.3% from last year.

Rental Risk Prices Declined in December
The average price for rental risk units sold at auction in December was down 5.3% year over year. Rental risk prices were down 3.4% compared to November. Average mileage for rental risk units in December (at 55,700 miles) was down 18.7% compared to a year ago but up 3.1% from November.