Used vehicle sales came back strong in May compared with new vehicle sales.

New vehicle sales in May were better than expected, but overall were still down by about a third compared with last May. However, the real good news appears to be on the used-car side of the business appears to be on the rise.

Used car sales were down 5% in May compared with the previous month, including being down just 2.3% from the pre-pandemic forecast for the final week of May, according to according to Larry Dixon, senior director of valuation services, J.D. Power.

Additionally, wholesale auctions are recovering very quickly and were off just 6% in the final week of May from what would have been expected pre-pandemic. On the auction side, prices reached “slightly above” pre-virus expectations as a result of dealers needed to replenish, he noted. Much of the final week improvement is due to the fact that dealers are scrambling to find vehicles to fill their lots and prices are rising.

(Are auto sales back on track? May depend on automakers throwing more cash at buyers.)

“Some expect used car prices to be depressed for some time. We believe they will close the year not too far from pre-pandemic expectations,” he said. Power initially predicted the used car market would recover reasonably well at just 3-5% below pre-pandemic expectations. However, after May’s results, the forecast has been revised to just 2-4 percent.

Used vehicle sales ramped up in the second half of May as dealers looked for vehicles to round out inventory.

According to Cox Automotive’s Manheim unit, wholesale used vehicle prices, which is on a mix-, mileage-, and seasonally adjusted basis, increased 8.96% month-over-month in May. This brought the Manheim Used Vehicle Value Index to 137, a 1.9% decrease from a year ago.

On a year-over-year basis, all major market segments saw seasonally adjusted price declines in May. Luxury cars outperformed the overall market, while most other major segments underperformed the overall market.

According to Cox Automotive estimates, total used vehicle sales volume was down 22.4% year-over-year in May. We estimate the May used SAAR to be 32.0 million, down from 39.2 million last May but up from April’s 27 million rate. The May used retail SAAR estimate is 16.7 million, down from 21.0 million last year but up month-over-month from April’s 14.4 million rate.

(Global industry taking a massive hit; full recovery still years away.)

While the market did see improvements, it appears likely that even used cars are still going to see some sluggish results for the next few months.

“After a record drop in wholesale prices in April, we saw the markets stabilize in the second part of May” said Alex Yurchenko, senior vice president, Data Science at Black Book, which provides data and information about the used-car industry.

Independent used car dealers were dealt a blow by Wells Fargo’s move to stop offering loans.

“Both the Truck/SUV and Car segments depreciated in May, but at much lower rate. Due to changing economic conditions and the expected glut of used inventory, we project a drop in values over the summer months.”

Any recovery is predicated on access to credit, for dealers and buyers. For now, dealers claim financing isn’t an issue, Wells Fargo & Co., a major supplier of new- and used-car financing, sent letters out to independent used car dealers this week that it will stop offering loans to those dealers due to economic uncertainty.

(Mazda bucks industry trend, posts sales gain in May.)

Independent dealers make up less than 10% of the 11,000 dealers Wells Fargo uses to sell auto loans, according to the person with knowledge of bank operations, CNBC reported.

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