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Used Car Prices Crash Most Since 2008

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  • Used Car Prices Crash Most Since 2008

    Not good for the auto industry, but might be a good time to buy a used vehicle(or even new with the new vehicle incentives).

    According to NADA Used Car Guide, wholesale prices on used vehicles are getting crushed. Let’s take a look at the details.
    Used Market Update

    In a reversal of what typically occurs in February, wholesale prices of used vehicles up to eight years old fell substantially last month, dropping 1.6% compared to January. The drop was counter to the 1% increase expected for the month and marked just the second time in the past 20 years prices fell in February (last years’ scant 0.2% being the other instance).

    NADA Used Car Guide’s seasonally adjusted used vehicle price index fell for the eighth straight month, declining 3.8% from January to 110.1. The drop was by far the worst recorded for any month since November 2008 as the result of a recession-related 5.6% tumble. February’s index figure was also 8% below February 2016’s 119.4 result and marked the index’s lowest level since September 2010.

    Incentives Jump by 18.1%

    Automakers grew incentive spending once again in February, making it the 23rd month in a row where spending was increased. On average, spending reached $3,594 per unit versus $3,043 per unit in February 2016 according to Autodata.

    Among the U.S. Big Three, GM raised incentives by 27.4% in February to an average of $5,125 per unit. Spending at Ford Motor Company rose by 20.9% to $4,012 per unit, while FCA increased incentives by 10.6% to $4,365.

    As for Import automakers, Toyota Motor Sales raised incentives by 7.9% in February, reaching an average of $2,267 per unit. American Honda grew incentives by 26.6% to $1,886, while Nissan North America increased spending by 20.1% to $4,080 for the month.

    Inventory Falls to 74 Days

    Compared to January, days’ supply fell by 11 days in February, landing at 74 days for the period. Looking back, February 2016 saw a supply of only 69 days according to Wards Auto.

    GM’s supply reached 91 days over the month, due largely to Buick’s industry high 167-day inventory. Ford Motor Company’s supply fell to 78 days, while FCA’s inventory dropped to 83 days.

    Toyota Motor Sales’ supply decreased to a lean 67 days, matching Nissan’s figure for 67 days for the month. Meanwhile, inventory for Honda fell to 74 days. Subaru’s 38 days of supply remained lowest in the industry.

    As for luxury automakers, BMW’s inventory fell to 46 days, while Daimler inventory remained unchanged versus January at 44 days’ supply. Cadillac’s inventory of 107 days was the highest in the luxury sector, while Tesla’s two days was the lowest.
    Desutche Bank is gravely concerned...

    We’ve grown increasingly concerned about U.S. Used Vehicle Pricing down 7.7% yoy during February, per NADA. A decline in used prices has been widely anticipated given a significant increase in used vehicle supply (off-lease vehicles). But the magnitude of the recent drop was nonetheless surprising (February’s drop was largest recorded for any month since Nov. 2008). NADA cited a number of factors contributing to the drop, including an increase in late model auction supply from rental fleets, and delayed tax refunds. Used prices have a significant impact on New Vehicle demand/pricing through their effect on affordability (most new car purchases involve a trade-in).

    New/Used Vehicle Pricing & Demand Relationship. Some consumers shift from New to Used when Used Vehicle prices become relatively more attractive, negatively impacting New Vehicle demand. Used price deterioration also has an impact on credit, as lenders watch loan loss severity (and frequency), and tighten when this stat. weakens (potentially creating a negative feedback loop). At a more macro level, used vehicle price weakness is also seen as an indicator of aggregate vehicle supply/demand imbalance in the economy–caused by new vehicles entering the parc significantly faster than the rate of scrappage and net new licensed driver growth. This situation should ultimately self-correct as new car sales come under pressure. That said, the biggest fear for investors is that Auto OEMs become incrementally more price aggressive to support New Vehicle sales. Historically, every 1% decline in Used Vehicle prices has corresponded with a 0.2% decline in New Vehicle prices.
    Fundamentally Speaking

    NADA partially blames late tax refunds for some of the declines in March.

    While it’s true the IRS slowed claims for the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) to combat fraud, late refunds in 2017 cannot possibly explain an eight-month trend.

    Yet, based on tax refunds, NADA expects a rebound in used car prices in March.

    With massive incentives on new vehicles, I say, let’s see. Regardless, it’s pretty clear that car sales are slowing, and it takes bigger and bigger incentives to push them out the door.

    Recall that on March 7, GDPNow 1st Quarter Forecast Plunges to 1.3% Following Vehicle Sales and Factory Orders Reports.

    Also recall that the FRBNY Nowcast did not take auto sales into consideration.

    On March 15, I reported GDPNow Forecast Dips to 0.9%: Divergence with Nowcast Hits 2.3 Percentage Points – Why?

    Is this all related to slow tax refunds? We will soon find out.

  • #2
    There are other factors as well, such as flat or negative household income, and the Fed raising interest rates (accompanied by a long spout of B.S. from Yellen, what a crock!) as well as general overcapacity in the industry. They can manufacture a lot more cars than they can sell these days.

    It looks to me that the auto industry is struggling with the effects of a crappy economy that has been masked by massive inflationary money creation by the Fed for many many years. Regardless of how things are in the real world, the Fed has already promised 2 more rate hikes this year. They will come up with a bunch of lies to 'justify' this move, even though anyone with more than 2 working neurons knows that it is all a bunch of crap. What is the real reason? Are they going to purposely tank the economy in order to try and oust Trump? I figured that bankers just want to make more and more $$ for themselves, and it doesn't work well in a failing economy. But the truth is that the great robber barons at the top of the heap make astonishingly obscene amounts of money regardless, and us taxpayers are on the hook for all of it. So they might be tanking early so that they can then drop interest rates to bring things back for the re-election in 3.5 years, but it is hard to say at this point. It is all funny money anyway, so hang on. The ride is putting all of us in 'interesting times' (to recall the chinese curse).

    What a wonderful world we have to live in!




    • #3
      JMHO, but I think this is also a good time to not go into debt. We can't tell what the future may bring in terms of the economy and the value of the dollar.
      "There are only two things we should fight for. One is the defense of our homes and the other is the Bill of Rights." - Maj. Gen. Smedley Butler, USMC

      "The Constitution of most of our states (and of the United States) assert that all power is inherent in the people; that they may exercise it by themselves; that it is their right and duty to be at all times armed." - Thomas Jefferson


      • #4
        I'm a buyer if the used car market drops by 50%.

        Where I live, I need a truck and I'll need to get another one in the next year or two.

        Morgan Stanley: Used Car Prices May Crash 50%

        For months we've been talking about the massive lending bubble propping up the U.S. auto market. Now, noting many of the same concerns that we've highlighted repeatedly, Morgan Stanley's auto team, led by Adam Jonas, has just issued a report detailing why they think used car prices could crash by up to 50% over the next 4-5 years.

        Here's the summary (flood of supply, poor lending standards and desperate OEMs who need to keep new car sales elevated at all costs

        Of course, so far negative equity hasn't been a problem for car buyers because lenders have been all too willing to roll those debt balances into new loans. And, courtesy of low rates and stretched out terms, consumers haven't really cared that their debt balances are ballooning so long as their monthly payments remain low.


        • #5
          I wonder why automobile and pickup truck prices are so high, could it be because the top people are over paid like the woman that is the CEO of G.M. who gets paid 26 Million a year not including stock options, a free auto of your choice and other goodies. Just break this salary down to a month and then to a week then let me know if they are worth that money.


          • #6
            Yeah, corporate mucky-muck salaries are silly high while those of us that work for a living are treated like a baby treats a diaper. This is not what made America great. It will, instead, demonstrate how to wreck an economy.

            Note to all you overpaid idiots out there: When you outsource jobs to get the cheapest offshore labor possible, who is going to be left to buy the overpriced goods and/or services your company is trying to sell? (Hint: it won't be those unfortunate souls you just dumped into a really crappy job market.)


            • #7
              Reminds me of a bumper sticker in the late 70's.
              Hungry? Out of work? Eat Your Import!