By The latest data on used-car prices indicates a positive trend for car buyers, while presenting challenges for car makers. The esteemed Manheim Used Vehicle Value Index, which provides valuable insights into wholesale used-vehicle pricing, reported a reading of 211.7 for July, marking an 11.6% year-over-year decrease.
This decline in pricing has continued for the past 11 months, with six of those months experiencing double-digit percentage drops. It is worth noting, however, that prices still remain about 38% higher than they were at the end of 2019, prior to the onset of the Covid-19 pandemic. During this period, auto production was significantly impacted, leading to reduced car supply and subsequent price hikes.
Starting from July 2020, the Manheim Index witnessed double-digit percentage growth for an impressive 22 consecutive months.
According to Chris Frey, Senior Manager of Economic and Industry Insights at Cox Automotive, the recent index value is on par with what was last observed in April 2021. Cox happens to be the owner of Manheim. Frey highlighted that while the used retail inventory is slowly being replenished, there is also notable strength in summer sales. As a result, it is unlikely that we will witness significant wholesale price declines until December.
Analyzing this data has yielded mixed implications for auto stocks. On one hand, lower used-car prices exert pressure on new-car prices, which presents obstacles for General Motors (GM), Ford Motor (F), and Stellantis (STLA). However, the fact that pricing is anticipated to remain stable throughout December is not entirely negative news.
Overall, these developments in used-car prices offer a favorable outlook for car buyers who can take advantage of the falling prices. However, car makers need to navigate this challenging landscape as they grapple with the effects of supply chain disruptions and their impact on pricing.
The Changing Landscape of Car Prices
The automotive industry has experienced a drastic shift in prices over the past year. According to Kelly Blue Book, the average transaction price for a new car in the U.S. has risen to around $49,000, while the average used-car price currently sits at approximately $27,000. Comparatively, these figures stood at $39,000 and $20,000, respectively, at the end of 2019 – pre-pandemic.
Impact on Stock Market
In terms of stock market performance, Ford has seen a slight decline of 0.3% in Monday trading, whereas Stellantis and GM shares have exhibited gains of 0.7% and 0.8% respectively. Furthermore, the S&P 500 has increased by 0.7%, while the Dow Jones Industrial Average has experienced a rise of about 1.1%.
Price Concerns Reflected in Share Prices
Several pricing concerns have already manifested in share prices. Over the past month, GM and Ford shares have declined by approximately 7% and 14% respectively. In contrast, Stellantis shares have surged by about 10%, driven by robust earnings. The S&P 500 has seen a modest increase of approximately 3% during the same period.
Evaluating Stock Value
When assessing stock value, Stellantis stands out as the most affordable option, with shares trading at around 3.5 times the estimated earnings for 2024. Ford and GM, on the other hand, have higher price-to-earnings ratios of 6.8 times and 5.4 times respectively.
Influence on Auto-Parts Stocks
The fluctuations in car prices also impact auto-parts stocks. Lower prices often result in higher sales volumes for both new and used vehicles. In recent months, Americans have been making car purchases at an annual rate of roughly 15 million units. This number is slightly lower than the pre-pandemic figure of around 17 million. However, more car sales also translate to an increased demand for auto parts from suppliers.
In light of this, both Lear (LEA) and Gentex (GNTX) have witnessed a rise in their share prices, both experiencing an increase of about 1.7% on Monday.
The Dilemma of Falling Prices
While falling prices may seem advantageous for increasing sales volumes, they can present a dilemma for buyers. The prospect of prices dropping even further in the coming month may lead buyers to hold off on their purchase, eagerly awaiting a more favorable deal.
It is clear that the automotive industry is undergoing significant changes in pricing dynamics. The impact is evident not only in stock market performance but also in the behavior of both suppliers and consumers alike.
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