Used Car Prices Crash Most Since 2008

Tyler Durden's picture

Authored by Mike Shedlock via MishTalk.com,

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

Used Car Prices Since 1995

Used Car Prices by Type of Vehicle

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.

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crossroaddemon's picture

Good. Used cars are way overvalued.

FreeShitter's picture

You dont want a 5 year old mailbu for 12 grand? I have seen some around here for that lol.

Benito_Camela's picture

Only if it's riding on 24" mirror chrome rims. 

JRobby's picture

Might as well just throw some giant urethane skateboard wheels on it!  Great in snow & Ice!

Anteater's picture

Where is Trump's 'Cash for Ivanka's Junk!' program? It would be YUUGE!!

Retail's absolutely cratering. They're offering -25% flash discounts on 2016

gear, just to get people into stores. Nothing is moving. I've seen discounts

of -85%. Just bought a new work shirt and levis, quality brands, for $25!

Just bought a complete cutlery set, quality SS, sharp as razors, for $18!

Tellin' my kids, grab utensils and cutlery now, before Trump raises tariffs!

Get shoes and wardrobe now, before Trump takes US back to sackcloth!

This 'Bigger Battleships' war putsch of his, is going to bankrupt America!

His tariffs on China will crush retail then collapse commerical real estate!

Has everyone forgotten 2008? That's what America will be like until 2020!

"I can't tell you where all the money went!" Helicopter Ben

just the tip's picture

the only thing you left out was, "oh, the humanity".

Honest Sam's picture

How was your "Future Meter" in 2007?? Did it predict that the Jews in New York would out themselves as the real political power in America?

Trump cannot do a thing without the other, Congress. So stop twisting your briefs in a Fake Panic.

And just to update you: The U.S. was bankrupted decades ago.  It has far more debt than liquid or other assets.  It's only surviving on life support. Self-interested Charity. 

If it wasn't for digital creation of money (as opposed to that messy stuff, cash) we would already be living grey concrete towerblocks standing in Croissant lines all across the country.

 

chicmagnet's picture

Croissants are very tasty.

chicmagnet's picture

So, you would prefer to keep the Ponzi scam going so that your children and grandchildren have an even bigger mess? Nice guy.

woody188's picture

Chinese steel is garbage. Always has been, always will be.

JRobby's picture

You are allowed to have cutlery? Now there's a revelation!

Peak Finance's picture

Analysis here is difficult.

This is becuase the used car market was artifically pumped by stupid government policy like Cash-for-clunkers and easy credit on used cars (in the old days it was harder to get credit for used cars encouraging cash sales and thus depressing prices) 

I look at the first chart and say fair value is not reached yet, a bit more to go. 

SmittyinLA's picture

Heh in the future....."cash for clunkers" videos will be shown in Chinese economics classrooms while the students laugh at the former nation of America like we laugh at Greeks.

ThanksIwillHaveAnother's picture

I see GM Tv ads for $4-7k off on SUVs and $10K off on pickups.   And the panic is just starting!

CJgipper's picture

The suburbans are 70 freaking thousand dollars!!!

 

That's still 60k plus for a freaking family car.  INsanity.

Peterman333's picture

Exactly, absolute insanity. 70 f'in K?

You could buy a beat up house for that fix it and rent it.

northern vigor's picture

I love those $10,000 off deals. Even though I can afford to pay cash, I  let them finance it at 0% because that is smart using their money. Buying in August is the best time when they are dumping the old model years. You can get  loaded trucks on the lots,  for the plain jane price. They'll throw in the chrome or running boards. Never buy extended warranty or OnStar. Its gone before the manufacturer's warranty is up. If it gets stolen or crashed, the insurance replaces it new.  

I'll buy a $45,000 truck at 0%  and get 100% of the sales tax back. Subtract the $10,000 rebate and it is $35,000. I generally have another $2,000 saved up on my GM  Visa Card. = $33,000. I get all the sales tax back because it is for our business. 

I 'll trade a three year old truck in for $18,000, net cost $15,000 for the new one.  Secret to a good trade in price is to not smoke, or let your dog ride in it. 

But wait...there's more. I write off the $15,000 as expenses over three years, that saves me $5,000 in income taxes. 

Net $10,000 for three years. Full warranty on everything, and the last truck they even gave me four free oil changes. No exhaust repairs...new tires, headlights...everything covered for three years.

I'm driving 18,000 miles per year, so that is 18 cents per mile. Fairly respectable cost for driving around in a new 4X4 truck that gets worked hard...Plus these new 8 cylinders that drop to 4 cylinder engines, get 30 mpg.  

Peterman333's picture

Allso, isn't there still a tax credit in place for trucks, it used to be a free truck but now I think it's like a $15k discount? Use it for business and drive personally for even less.

Arrest Hillary's picture

Join a forum of people who own a car like yours .... fix the glitches .... also on line mechanics show you how to diagnose and fix many problems .... lots of cream puffs with grandma glitches out there .... check crankshaft position sensor and stuff like that ?

Latitude25's picture

I drive a piece of shit and keep my new 2000 Toyota echo with 35k on it parked in the garage for retirement.

jughead's picture

Murphy sez: when you retire any cars older than 2010 will have been outlawed due to new EPA regs.  

 

Peterman333's picture

Hehehe, car dealer scum, eat a fat one along with the oil guys and their $4.50 per gallon that they raked us over the coals for over 10 years

mrdenis's picture

Tell U where the value is classics ...bought a 84 Mercedes Benz 300TD 6 years ago for 3K ...use it as my daily driver could sell it now for 8 to 9K easy .....but I won't cause I can't replace fot that ...buy a good classic and drive it 

Jubal Early's picture

You still see those old MB's and even Peugot 504's all across Morocco.  Often overloaded by at least 200%.  They never die.

SmittyinLA's picture

I see no Tundra deals

Beatscape's picture

The feds are coming down on the repo man's high tech GPS + kill switch technology for remote shut down and repossession.  This must be a leftover policy from the Obamanation days to favor deadbeats:

https://arstechnica.com/tech-policy/2017/02/subprime-auto-lender-facing-ftc-inquiry-over-gps-tracking-kill-switches/

As of today, I'm short SC.  Here's more on them:

http://www.dallasnews.com/business/autos/2017/02/24/dallas-auto-finance-giant-stop-using-gps-tracking-ignition-kill-switches-repo-cars

 

Falling Down's picture

Friend of mine who sells new Fords made under $20,000 doing so, last year. He was bitching in late 2015 about sales, and the fact that salesmen just aren't making money like they were 5 years ago.

 

He makes more delivering pizzas on the side.

As others here have noted, who has $55,000+ to drop on a truck? Ford's quality has gone to shit (again), in fact one model is so bad the entire vehicle is on recall, yet Ford won't replace them. We're led to believe the automakers are in good shape, but they're not. One customer of my buddy's can't trade their lemon which has been in the shop 7 times, because Ford won't buy it back.

 

Fuck new vehicles, I'm in the market for a straight 6 Cherokee or Grand Cherokee. Just wait until Craigslist lights up like a Christmas tree with used vehicles, like in '08 and '09.

Honest Sam's picture

You seem like a pretty savvy guy, so why on earth would you buy any Jeep, new, used or refurbished?? They are crap. 

IMHO (but with certainty and proof).

CJgipper's picture

as a guy with a jeep collection, a honda, and an infinti, I must concur.  I might get a wrangler just because I want it, but if I got one choice for life?  any newer crew cab 4x4 ford truck.

Honest Sam's picture

The four signs of the Zombie Apocalypse:

1) Harry's shave club

2) MyPillow record sales.

3) Men's scruffy facial hair

4) unsold used cars' prices falling thru the floor.

 

Prepare accordingly. 

Tzanchan's picture

It's the end of the world as we know it, but I feel fine....

RedBaron616's picture

Why buy new and feel that sickening feeling as you drive off the lot that the car just lost several thousand dollars in a tenth of a mile!

Stan Smith's picture

Comments in this thread relate to this,  but it's staggering to me how much the push for getting "a new one" has taken over.    And as we're now seeing, pushing those on folks who cant afford it.    Doesnt stretching out the number of payments over 6 or 7 years just increase the default chance?   Yea, those can be repo'd but what are the costs with that?    I dont see how these extra costs to either dealers (with incentives) or financiers (with what I could only call 'obscenely generous' terms) end up holding on anymore.

 

But the primary issue really is price.    Since the crash of 08,  while prices did drop then,  they've crawled up since then... while most peoples incomes have not.    Arent we still short on the median income scale?   Like by 5-6k per year?    So thats 500 extra bucks per month the average family is SHORT compared to where they were a decade ago.    If 'average household' family is 500 bucks short, but gets a 'new' vehicle that costs 50-100 more per month than it did 10 years ago,  how in the hell does any of that make sense?

 

I cant wait until we go to 10 year financing on vehicles.    Whattya think the default rates will look like then?

Thinkpad's picture

Actually when you think about used car prices plummeting is a somewhat bad sign. It means folks are more secure about the future as it pertains to their bottom line, their job security or prospects and therefore more comfortable about assuming more debt to buy a new home oops I mean vehicle. 

Publicus's picture

We will defeat the wheeled jew!

Yen Cross's picture

 The 'Michael Hastings' effect is kicking in.

moonmac's picture

Sure you paid $12K for a car that sold for $26K under 3 years ago but it’s still a college kids car.

Well at least my used car didn’t drop $12K in value the second I drove it off the lot like your overpriced new car did.

 

*sigh*

swampmanlives's picture

Who needs a car when you can use Uber? Fewer people are getting their driver's licenses too. And of course, grads straddled with debt can't afford to buy a car. Just wait until the self-driving cars start to take over.

Tzanchan's picture

Self driving cars? HA! Self driving trucks will put the #1 job in 48 states to the way of the buggy whip. They go 65 mph 24/7 drive off for more fuel satellite monitored, no more work for hookers at the trick stops. Then local trucks, drive to a destination, self unloading or have much lower priced human crash dummy aboard to actually unload at $8 an hour no bennies. No frolic, no detour, no crashes no PI lawyers. Can't wait for Robot Sex, but then again i saw Ex Machina, kinda creepy, they'll talk back and cut us off too soon enough....

GoldenDonuts's picture

Exactly.   All jobs AND professions will be a thing of the past followed closely by humanity.  Then what good will all of the efficiency, automation, computerization, robotization, and drones be? 

Bloodstock's picture

Bullshit! SInce when has automation brought prices down and saved the planet?

Silver Savior's picture

I personally like my own space and I don't have to fart around waiting for a Uber driver. And besides Uber is nothing but glorified hitchhiking. 

chicmagnet's picture

Civil lawsuits will eventually take care of Uber

yellowsub's picture

Uber drivers probably boosted new car sales for a while.

aliens is here's picture

I don't see any used car prices collasping here. Where I live a used 2010 Rava 4 is still $17999 at my local Toyota dealership.

Benito_Camela's picture

What's with the browser freeze for 5 seconds every time I upvote a comment? 

Caleb Abell's picture

It takes time for the NSA to update your file.