Automotive Fleet, December 2020

was a surge in home improvement causing a jump in contractor demand for used work trucks and vans The entire resale market for used trucks continues to be very strong and the resale values have been hitting record highs Used trucks felt the largest impact as resale values soared in the third quarter with supply dwindling and demand constant Deprecation on pickups lead the industry with under 6 deprecation over at 12 month basis as well as full size vans not far behind with under 8 deprecation rate said Crocker of Merchants Fleet On the wholesale side resale prices for full size pickups have increased 23 since the first week of March On average used trucks were achieving double digit increases in resale values One factor contributing to this increase is that fuel prices are stable and remain relatively low which helps to stimulate demand for full size trucks and SUVs The rule of thumb is that when fuel prices are low it stimulates sales of larger vehicles and when fuel prices are high it stimulates demand for smaller vehicles Consequently one of the weakest vehicle segments today in terms of resale values is subcompact cars primarily because fuel prices continue to be relatively low Although sedans as a percentage of fleet vehicles are declining as more fleets switch to crossovers and small SUVs sedans continue to bring strong returns in the wholesale market The forecast is that sedans will continue to have good resale value into 2021 especially as the volume of sedans at auction continues to get smaller As the inventory of sedans in the wholesale market reaches equilibrium with buyer demand their resale values should continue to be strong One area of future concern is the resale values for crossover models The saying in the wholesale market is that What sells good new sells good used While crossovers are selling very strong in the new vehicle retail market it is causing an increase in supply in the wholesale market which may lead to some softening of resale values Although resale values of crossovers and small SUVs may be softening due to increased inventory their resale values continue to remain strong As of press time there was some softening industry wide in resale values in the month DECEMBER 2020 I AUTOMOTIVE FLEET 17 which created a favorable supply demand ratio for used vehicles that triggered a robust resale market As summer approached we felt a rebound in the market due to a limited supply in both new and used vehicles said James Crocker director remarketing for Merchants Fleet As a result the resale market during the summer of 2020 was a sellers market with conversion rates unlike any prior summer market that the remarketing industry experienced Demand was strong and resale prices were high stimulated by the shortage of used vehicles Also ongoing low interest rates for consumers for auto loans and higher trade in values supported higher transaction prices The increasingly warm resale market created greater confidence in fleet customers and we saw the factory order process start to return to norm said Wuich of Donlen Likewise Crocker of Merchants Fleet cited the positive impact to resale prices caused by the shortage of used vehicles in the wholesale and retail markets Overall the increased supply of late model lowmileage vehicles entering the remarketing arena saw strong wholesale remarketing results Dealers struggled to get new inventory and demand for this segment soared Dealers needed used inventory to fill the void from the limited new vehicle inventory they had to sell said Crocker DEMAND FOR VOCATIONAL VEHICLES The strongest vehicle segments for commercial fleets are vocational vehicles service vans and utility trucks All of these segments are outperforming the resale guidebooks by up to 15 18 Historically there has always a strong market for vocational vehicle but the pandemic caused this demand to go through the roof especially as the inventory of these used service utility vehicles was very limited While many segments of the macroeconomy were being battered other segments were experiencing robust business For instance the construction market has remained strong during the pandemic causing a strong demand for utility vehicles and work trucks In addition with the majority of the population sheltering in place at home there over year said John Wuich vice president strategic consulting services for Donlen More recently sales volumes not only have returned but at times outpaced 2019 Prices have also increased as new vehicle WUICH DONLEN production was halted between mid March to late May 2020 resulting in a decline in depreciation year over year All of these market variables accentuated the uncertainty in the resale market Demand for used vehicles diminished and overall resale prices declined but not all fleet vehicles segments were affected equally By segment vans were an anomaly as sales volumes remained low and fleets hung on to these vehicles said Wuich The downsizing in mobility fleets resulted in an average vehicle age at sale that was down considerably year over year In turn prices for the sedan and compact SUV fleet appeared artificially inflated Starting on March 18 2020 the first automotive assembly plants started to temporarily shutdown due to concerns about virus contagion by assembly plant workers By the end of March almost all assembly plants were closed in the U S Canada and Mexico It wasnt until mid May that assembly plants one by one started to reopen with the last of the plants becoming operational in early June 2020 RESALE MARKET REBOUNDS After COVID 19 was declared a pandemic depreciation rates increased during the spring months of 2020 Then to everyones surprise the resale market started to dramatically improve during the last two weeks of May as many states started to re open their economies This released pent up buyer demand for both new and used vehicles Even though the physical in lane auctions were closed there was a widespread adoption by dealers of online sales which no one would have predicted as early as the beginning of this year During the summer the government stimulus monies started to arrive and many consumers used their stimulus checks as a downpayment for a used vehicle While retail demand was strong there was an ongoing shortage of used vehicles in the market CROCKER MERCHANTS FLEET