Manheim Used Vehicle Value Index Ends 2025 on Stable Note; 2026 Forecast Calls for Normal Depreciation, Rising EV Influence

The Manheim Used Vehicle Value Index (MUVVI) closed December at 205.5, up 0.4% year‑over‑year and 0.1% month‑over‑month, with non‑seasonally adjusted prices +0.5% YoY but -0.4% MoM. MMR retention averaged 99.6% in December (up 60 bps YoY and 70 bps from November) and daily sales conversion rose to 56.8% (4.6 pp above the three‑year average), while the EV Index outperformed at +2.5% YoY. Cox Automotive estimates retail used‑vehicle sales rose ~2% in 2025, expects 2026 retail sales of 20.3 million (-0.7% YoY) and projects the MUVVI will increase about 2% by year‑end 2026 amid constrained supply and gradually rising EV share (3.3% now).

Analysis

Market structure: Stabilizing wholesale used prices (MUVVI +0.4% YoY; EV Index +2.5% YoY) implies dealers and remarketers regain pricing power versus 2022–24 distressed capital cycles. Winners are used-vehicle retailers (CarMax KMX, AutoNation AN, Lithia LAD) and captive/indirect lenders (Ally ALLY) through improved MMR retention (~99.6%) and higher sales conversion (56.8%); losers include low-quality online resellers and OEMs facing lease-return deluge if lease maturities accelerate.

Risk assessment: Tail risks include a sharp macro shock (GDP decline >1% Q/Q) or a rapid interest-rate re-steepen that raises auto loan rates and spikes delinquencies—both would pressure wholesale values and ABS spreads. Near-term (days–months) sensitivity centers on tax-refund season and loan-rate moves; medium-term (3–12 months) hinge on lease maturities rising and EV return volumes growing from a 3.3% index weight today.

Trade implications: Prefer long high-quality used-retailer equities and selective auto-loan credit while avoiding leveraged pure-play online liquidators; auto ABS mezz tranches should tighten if losses normalize—target 6–12 month horizon with 15–25% return expectations for equities if MUVVI follows Cox’s +2% 2026 forecast. Use short-dated options to express asymmetric exposure around tax-refund and Fed-rate headlines.

Contrarian angles: Consensus understates residual-value upside in EVs and luxury segments—EV returns are early and concentrated (9 months of YoY gains), so long picks with inventory control (LAD, KMX) may be underpriced. Risk: declining new-vehicle production would tighten supply and lift used prices further, making short OEM inventory plays crowded and costly.

Key Decisions for Investors

• Establish a 2–3% net-long position split equally between CarMax (KMX) and AutoNation (AN) over the next 2–6 weeks; thesis: stable MMR retention and higher sales conversion support margins—take profit at +20% or trim at +12% after 3–9 months; stop-loss -10%.
• Buy 1.5–2% long exposure to Ally Financial (ALLY) equity or 3–5 year senior unsecured bonds (size to match risk appetite) within 1 month to capture likely lower loss severity and tightening ABS spreads if used values remain stable; target 12–18% total return over 6–12 months, stop if 3-month NCOs rise >50bps.
• Execute a pair trade: long Lithia Motors (LAD) 1.5% vs short Ford Motor (F) 1.0% size over 3–9 months—rationale: dealer groups with diversified, higher-margin EV/luxury resale win vs OEMs exposed to lease-return volume and pricing pressure; unwind if LAD/F spread narrows by 15% or if lease-return volumes don’t rise by at least 2ppt by Q3 2026.
• Use options for asymmetric exposure: buy a 3-month ATM debit call spread on KMX sized 0.5% notional (ATM to +10% strike) to play upside into spring tax refunds and falling loan rates, and buy 3-month 10% OTM puts on Carvana (CVNA) 0.25% notional as crash-protection against distressed retailers—close options on 30% profit or 50% loss.