Last updated Friday, August 11, 2006

If you have been paying attention to the market condition reports of the last several months, we could simply say ditto. If not, we can say that the market conditions continue to be very much the same as in the recent past: characterized by little demand and a corresponding lack of supply such that there is little to create excitement unless you have an exceptional vehicle. It is, simply put, a dull time in the wholesale auto business, not unusual for this time of year.

Most vehicles will experience some softening in the next month, but probably nothing drastic. The gas guzzlers have already taken some serious hits and have reached a saleable level. Unless the Alaskan pipeline issue creates a severe jump in gas prices and we start reaching the $4.00+ plateau for regular, we donít foresee a major change in those vehicles. Strangely enough, there seems to have been a recent surge in the larger SUVs at the retail level, as if the pricing has become attractive enough to tempt some buyers who may have had their reservations overcome by the relative bargains these vehicles have become.

There continues to be good activity in the under $10,000 price range, especially among the more fuel efficient segment. The retail buyers who are most concerned about gas prices seem to fall largely into this category, holding up some prices in this segment. Less fuel efficient vehicles in this price range, particularly older, larger SUVs and domestic V-8s, are experiencing some erosion at this price level.

European luxury vehicles continue to drop steadily. There is simply too much supply in this segment and we expect that trend to continue. A year ago, for instance, a three year old Mercedes S500 booked for $41,400 in the beginning of April and for $38,400 about 4 months later in early August. It depreciated about $3,000 over that period. This year that three year old S500 booked for $41,000 in April and 4 months later Ė today - books at $35,000. It has depreciated $6,000 over that same time span, or twice as much as it did last year. We donít think that is an unusual circumstance in this segment this year, and we think that level of depreciation may continue for a while.

Sport coupes and convertibles are experiencing a normal level of depreciation for this time of year, but nothing drastic.

Overall, although there is relatively little demand there is also very short supply and the market is holding up quite well for August. A good vehicle with a good clock will do well generally. Those very ordinary vehicles, however, deserve some caution.

Dan Galves