Automotive Salvage Trends: MAY 2010 IAA continues to see exceptional results in selling prices and returns for the month of May. As mentioned in the April 2010 Salvage Report, we expected some normalization of economic indicators to occur in May. Following a strong month of April, many of the economic indicators of salvage industry health leveled off during May. Prices of crushed auto bodies, platinum, and aluminum deviated slightly from their upward trends, which may affect prices for the low end vehicles sold at auction. The U.S. dollar appreciated fairly rapidly, following the demise of the euro and the state of the global economy. A strong U.S. dollar could challenge the purchasing power of foreign buyers and may depress commodity prices. Finally, average used car prices began to level off, declining slightly in May, as did the price of gasoline. By monitoring these indexes IAA is able to swiftly shift our buyer focus and marketing strategy to ensure a continued healthy bidding and buying environment resulting in continued aggressive returns. Scrap Metal: Whole Crushed Auto Bodies Following five consecutive month over month increases, the average price of whole crushed auto bodies fell just over 13 percent during May. Prices fell across all five zones, but still remained above prior year levels by 58.53 percent. These prices are directly linked to the value of the scrap metals that make up automobiles. According to Bloomberg News, Risk aversion drove equities and metals lower, Eugen Weinberg, an analyst at Commerzbank AG in Frankfurt, said today by phone. Metals now trade like financial instruments, and investor sentiment matters. (Chanjaroen, May 2010) A rapidly appreciating U.S. dollar may also be contributing to the lower prices of crushed auto bodies. While these prices may begin to put pressure on the value of low end vehicles sold at auction, our low end vehicle prices Whole Crushed Auto Body Prices (Dollars/ Gross Ton) are still well above historic levels. $0 $350 $300 $250 $200 $150 $100 $50 Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Whole Crushed Auto Body Prices Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Source: American Recycler 1
Platinum and Aluminum Prices Following two months of consecutive price increases, monthly average platinum prices declined by 4.95 percent in May. However, prices were still 44.07 percent higher than they were during the same time in 2009. The Wall Street Journal notes that, platinum, palladium and silver all tumbled with stocks as worries about the economy weighed on sentiment for industrial demand. Further pressure came from fears Europe s debt problems will slow its economy, plus efforts so far this year by China to cool its growth (Sykora, June 2010) Aluminum prices also declined in May, but did so at a greater rate than platinum (11.38 percent). As with the price of whole crushed auto bodies, low metal prices can be associated with lower prices of scrap vehicles at auction however, we continue to see selling prices above those of the previous year. $2,500 Platinum Platinum Prices (Dollars/Ounce) $2,000 $1,500 $1,000 $500 $0 Source: Johnson Matthey $1.60 Aluminum $1.40 Aluminum Prices (Dollars/Pound) $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Source: International Monetary Fund 2
U.S. Dollar The month of May brought continued gains to the value of the U.S. dollar, which appreciated against the euro, the Mexican peso, and the Canadian dollar, but depreciated slightly against the Japanese yen. The U.S. Dollar Index, however, jumped to its highest level since May of last year. Bradley Davis of the Wall Street Journal attributes this spike to the performance of the U.S. economy and investor concern about the state of the global economy. Davis states, The dollar gained modestly against most of its rivals, taking advantage of the solid U.S. economic data, but also benefiting from investors shunning riskier assets as the good U.S. news wasn t enough to extinguish all concern over the euro-zone s sovereign debt (Davis, June 2010). The following charts illustrate how the euro has been on a path of depreciation against the dollar over the last few months. A strong dollar generally corresponds with price pressure on lower end vehicles sold at salvage auctions. Although we are continuing to see selling prices well above the previous year s levels, we will continue to monitor the US Dollar Index, as well as our foreign buyer purchasing activity. 85 U.S. Dollar Index 83 81 79 Index Value 77 75 73 71 69 67 65 Source: Federal Reserve Bank of St. Louis 3
0.85 Euro 0.80 Euro per U.S. 1 Dollar 0.75 0.70 0.65 0.60 110 Yen Japanese Yen per 1 U.S. Dollar 105 100 95 90 85 $15 Peso $15 $14 Pesos per 1 U.S. Dollar $14 $13 $13 $12 $12 $11 $11 $10 $1.30 Canadian Dollar Canadian Dollar per 1 U.S. Dollar $1.25 $1.20 $1.15 $1.10 $1.05 $1.00 $0.95 4
Average Used Car Prices/ U.S. Average Gas Price During the month of May, average used car prices declined by 0.82 percent over April, but still remained above levels observed last year by 5.49 percent. According to ADESA s Tom Kontos, average used car prices are nearing the area of 60 percent of new vehicle prices, which is generally the area where we observe a peak in used car prices. Regarding the historically high prices we have been observing in recent months, Kontos notes, The tight supply situation that is the fundamental driver to high wholesale used vehicle prices may be with us for quite some time, as fewer used vehicles were produced when new vehicle sales fell from approximately 16-17 million per year from 1999-2007 to approximately 13 million and 10 million, respectively, in 2008 and 2009. (Kontos, 2010) The average per gallon price of gasoline in the U.S., meanwhile, edged downward, declining by 0.71 percent over April. $12,000 Average Used Car Prices $4.50 U.S. Monthly Average Per Gallon Price of Gasoline Used Car Prices in U.S. Dollars $10,000 $8,000 $6,000 $4,000 $2,000 $0 Price per Gallon of Gasoline (U.S. Dollars) $4.00 $3.50 $3.00 $2.50 $2.00 $1.50 Source: Energy Information Administration Source: ADESA Analytical Services We will continue to monitor the market trends that affect salvage vehicle values and share updates as appropriate. To subscribe to IAA s Salvage Index, Please e-mail salvageindex@iaai.com. List of References Chanjaroen, Chanyaporn (May 25, 2010) Copper Falls as Dollar Rallies, Investors Avoid Commodities Bloomberg News Retrieved Monday, June 14, 2010 from http://www.bloomberg.com/apps/news?sid=asvstbktdtdm&pid=20601087 Davis, Bradly (June 2, 2010) Euro at New 4-Year Low; Dollar Gains on U.S. Economic Data The Wall Street Journal Retrieved Monday, June 14, 2010 from http://online.wsj.com/article/sb10001424052748704875604575279994246415222. html?keywords=us+dollar Kontos, Tom (May, 2010) May 2010 Kontos Kommentary Current Used Vehicle Market Conditions and Outlook Sykora, Allen (June 4, 2010) Gold Edges Up as Haven Play Is Back On The Wall Street Journal Retrieved Monday, June 14, 2010 from http://online.wsj.com/article/sb10001424052748704764404575286253812976496.html?keywords=platinum 5
OVERVIEW OF IAA Insurance Auto Auctions, Inc. provides the advantage in salvage auto auctions with their Hybrid Auction Model combining live and live-online auctions, North America s broadest salvage auction facility footprint, a strong global buyer base and high vehicle returns. IAA s more than 150 facilities across the United States and Canada provide vehicle suppliers and buyers with powerful solutions to process and acquire total-loss, recovered-theft, fleet lease, donation and rental vehicles. The IAA Hybrid Auction Model, including live, live-online, and proxy bidding, united with their mature global buyer base and diverse inventory produce some of the industry s highest returns for vehicle providers. With 28 years in the industry, IAA holds a comprehensive warehouse of salvage auction data. For more information regarding IAA visit our website at www.iaai.com. ABOUT THE AUTHOR Jeanene O Brien is vice president of Provider Marketing at Insurance Auto Auctions, Inc. a role she has served since 2008. Ms. O Brien diligently tracks, analyzes and reports business and economic trends that impact the overall salvage industry. She helps showcase IAA s depth of industry expertise and history of industry leadership. Ms. O Brien is responsible for IAA s branding, public relations, advertising, and customer event programs. A 15-year veteran in the property and casualty claims industry, Ms. O Brien has a history of executing innovative and comprehensive marketing plans. She led marketing efforts for nearly 10 years at CCC Information Services Inc. and consulted for five years with claims vendors, including independent appraisal firms, collision repair facilities, and integrated technology providers. Ms. O Brien earned a bachelor s degree in English from the College of Wooster (Ohio) and a master s degree with focus in market research and advertising from Loyola University Graduate School of Business in Chicago. www.iaai.com 6