Manheim’s Used Vehicle Index

October 14, 2008

Re-Post of a fantastic blog by Joe Pistell.

Very relevant given the recent market activity – Thanks Joe, Dale.

Dale,

vAuto.com subscriber here with an out of the box concept that only you could tackle 😉

I was a self employed stock trader for nearly a decade. I’ve been in the Car biz. for last 5 years as Used Car Manager now as Marketing Director of a very large and fast growing Used Car retailer.

We all instinctively know that the Used Car Market goes thru strong and soft periods. During strong times, sales come along nicely and operation errors are buried in the good times. When the soft times arrive, you’ve got to have your “A game” on. Customers are harder to find and they you shop harder. Margins get compressed so patient, disciplined buying at wholesale is required for survival.

While working as Marketing Director of a Chevrolet store a few years ago, I noticed a nearly perfect correlation between the Manheim’s Used Vehicle Index and the S&P500. I produced charts of both indexes over identical 11 year periods and the correlations of trends are just plain scary. I’ve included the charts below and made notes on them. Notice the correlation of the direction of trends AND the dates the trends break (up and down).

Assuming the correlation is valid, this brings me to realize that different Inventory management techniques can now be triggered by an outside indicator… the S&P500.

See the charts below that I produced for management back in 2006, then onto my thoughts.

IF S&P500 TREND IS UP (used car market is strong)

#1). *Buy Side. Finding great deals at auction is very time consuming & buying them right is made more difficult as it’s important to keep inventory counts up to sell units at retail.

#2). *Sell Side. Although age is the enemy of margins, it is far less so in this environment.

IF THE TREND IS DOWN (used car market is in doubt)

#1). *Buy Side. Patience, Patience, Patience. Buying below market is far easier, so don’t chase units at auction, we’ll buy it for less soon enough.

#2). *Sell Side. Age is the enemy of margins, in this selling environment; operations have to be razor sharp. Take the short deal…. CASH IS KING.

*Buy Side = all the efforts & techniques related to acquiring inventory.

*Sell Side = all the efforts & techniques related to selling inventory.

Additional Chart Resources:

Current S&P500 long term chart

Manheim’s latest Used Vehicle Index info

Joe Pistell

Marketing Director

Sun Auto Group
UsedCarKing.com