Manheim Consulting, a trusted source of information for new and used car sales data, has released its monthly report for Feburary 2014 that shows prices rising while used car dealers are seeing a drop in volume. The saving grace appears to be certified pre-owned used cars.

Tom Webb, Manheim's chief economist, said, "Wholesale used vehicle prices (on a mix-, mileage-, and seasonally adjusted basis) rose 0.8% in February.

The Manheim Used Vehicle Value Index reading was 123.3 in February, which represented a 1.1% increase from a year ago. Data through the first three weeks of March suggest little change in wholesale pricing, seasonally adjusted."

What drove the market in February? That would be Uncle Sam, of course. As Webb pointed out in the Manheim Consulting report, "A surge in individual income tax refund disbursements in late January and early February played a role in propping up wholesale values last month."

The loosening of credit, especially in the sub-prime market for those with weaker credit, is also helping things. "In addition, readily available retail financing (at attractive terms) made the used vehicle retail market more profitable than the underlying unit sale numbers would suggest," said Webb.

"With new vehicle sales, incentives, fleet deliveries, and wholesale supplies now expected to grow, after a weather-induced hiatus, some pressure on residual values should be expected. The easing, however, will be moderated by what promises to be a continued healthy used vehicle retail market," Webb said, hitting on a key point.

A healthy used car market is going to impact new car sales.

It's important to look at new car sales to give context to the used car marketplace. A decline in new car sales means a drop in trade-ins correspondingly. That could put pressure on used car auctions, which Manheim specializes in, and account for price increases as used car dealers are willing to pay higher prices for certain inventory.

According to Webb, "New cars and light-duty trucks sold at a seasonally adjusted annual rate of 15.3 million in February, which brought the three-month moving average to that same level, and – as we cautioned last month – below the 12- month rolling total. That’s usually not a good sign.

"But, again, weather and delayed fleet deliveries were a significant factor. This will increase the pressure on manufacturers to push sales in the months ahead. Incentives were already picking up in late February; but they were mostly selective and were still down relative to average transaction prices, which continue to rise."

One trend to follow would be the continuously increasing sales of certified pre-owned cars. As Manheim reports,  "And, [certified pre-owned] sales, after hitting consecutive records in each of the past three years, are up 12.3% in the first two months of 2014." They are a sales juggernaut that refuses to let up.

The simple reason is the certified pre-owned business continues to be a profit center for new car dealers. Pricing is fairly transparent on new cars but there is still enough murkiness with certified pre-owned used cars for dealers to make a significant profit.

How so? Well, it comes down to the case of conditioning. A dealer can easily take a used car sold in good condition and make it into one that seems to be in excellent condition. Voila, more profit for a used car that really doesn't deserve it.

On a different front, the report has good information on used rental cars. Ever consider buying a used rental car? It's surprising how old these cars are getting before being sold. They're not the young cars they used to be in terms of mileage.

According to Webb's report, "When measured as a straight average, rental risk prices were down from a year ago, but up relative to January. After basic adjustments for mix and mileage, off-rental prices were up both year-over-year and sequentially. Average mileage on off-rental units sold at auction reached an all-time high of more than 42,300 miles in February. That reflects, in part, a delayed defleeting and slow fleet deliveries on new units into the rental fleet."

He adds this information: "The number of off-rental units entering wholesale supply channels remained low in February. That’s because companies had need for the units in the insurance replace- ment market. Off-rental volumes will likely remain low for a while given that the weather impact is not yet over, there is increased loaner demand resulting from large recall campaigns, and Easter is falling later in the year."