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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Fox-Scully's picture

Hey, if you live in the vehicle after buying it, you probably could get a 30 year loan with no money down!

jughead's picture

My first house had a cheaper listing price than my new truck. Luckily while I had to take out a mortgage for that house, I was able to pay cash for this truck. 

83_vf_1100_c's picture

You have now posted by my loose count 4X that you pay cash for new cars. If you are tring to impress someone, it ain't working dude.  From an investment viewpoint you would of done better buying the SNAP IPO. Jughead is a good name. He was a stupid fuck and the cool kids only let him hang out to have someone to laugh at. iirc they later had Jughead come out of the closet and gay marriage and all that PC bs that ruins a good franchise. So to recap, you are a queer dumbass that drives Mom's 12 yr old Civic. Living the life!

morongobill's picture

Please quit projecting your secret desires upon somebody else.

_ConanTheLibertarian_'s picture

Just bought a 500 Euro second car (1993 small city car). The first car (1995 big highway car) also cost me 500 Euros + 500 Euros to fix everything. Have been driving it for 5 years (only 800 Euros in maintenance and repairs)

I do maintenance and repairs myself.

Guess who is laughing hard here.

coast1's picture

I just bought a 2001 chrysler town and country van...all wheel drive, in perfect condition, one owner who had a stack of repair and maintenance receipts...Everything works, electric sliding doors and back hatch,  not a scratch on it, new tires and brakes and shocks etc...I found the receipt and it was 35k new...I bought it for $2600 and it only has 126k miles on it...I have to replace sway bar in front but thats only $200...took it to the dealer and spent $145 to go over it and they said engine is xlnt, new plugs and plug cables etc...I scored..The onnly thing I worry about it if I get transmission probems in the future...I find almost every vehicle gets trans probems long before engine goes...Cant they come up with a transmission that lasts 300k miles?   I thought the planet was high tech?

_ConanTheLibertarian_'s picture

Make sure the trans does not overheat and change oil often. This makes a difference.

chosen's picture

I wouldn't buy any car that could be hacked, has a kill switch, a digital display, or can be tracked.

Silver Savior's picture

Just save all the 1994-2005 cars and crush everything else. 

I have been noticing on the Facebook for sale or trade used cars are going for next to nothing. Regular cars are like $500-5k and you even see expensive big trucks now being offered for 5k. Depreciation central.

TalkToLind's picture

Dear TalkToLind,

We are in need of 2008 Xxxxxxxx Xxxxxs and we are prepared to offer you Blue Book + $800 for your trade-in!  And we are sure we can put you into a new Xxxxxxxx while lowering your monthly payment!

 

Bullshit. I own that 2008 Xxxxxxxx Xxxxxx free and clear, so how can a dealership get my payments lower than $0.00...by paying me each month to take possession of one of their shitty new cars? Hell, my shredder might overheat as I continue to feed it these stupid offers.  

Iconoclast421's picture

But this is a good thing. More 72 month loans.

Stan Smith's picture

What kills me is the people who roll existing car loans into new loans.   If anyone on the boards here who's in the industry can comment on it,  I'd love more information.   Negative Equity in to a product that is actually a liability strikes me as sign we've all gone crazy.

Apparently im old fashion and make sure my vehicle is actually paid off prior to getting a new one.    And in most cases,  I go years without a car payment.    I either pay cash out right in full, or a big enough chunk to have my loan no more than 2-3 years... TOPS.   I figure if I cant get the car I want beyond that, then I shouldnt be going after that car.   I know... discretion... im such a fuddy duddy.

Regardless, I'd have to think a significant market correction is starting to swing in,  no matter how much the Auto Industry will try to hide it.

When I see ads for GM showing 17% off the top price,  it tells me that vehicle is at least over priced by that much.   

rejected's picture

"due largely to Buick’s industry high 167-day inventory."

Yuglyiest car I have ever seen. The CEO and engineers who designed the new Buick's need shot and put out of their misery,,, along with the cars. I own a 98 Regal GS supercharged V6. Maintained well and still looks (almost) brand new. Never been to a dealer which is probably why it still runs so good. I love to park it by the new and improved 4 cylinder Buicks. Makes them look even worse.

All cars now have no bumpers, a small bump and it's a couple grand to fix. They all have bug like headlight with humongous grills. Just look stupid as shit. So bad we had to buy a truck so we wouldn't be seen in one of those POS. 

The shit people will buy if it has a iphone interface and satellite radio.

Dead Indiana Sky's picture

I've owned 2 cars in the last 26 years.  Maybe I oughta think about seeing what's out there.  The last 15 winters have almost literally chewed through my '02 Grand Prix.

Proofreder's picture

Boat - MUCH worse

A hole in the water surrounded by wood or fiberglass into which one regularly throws money.

Lot$ of money, bigley and often.

ihatebarkingdogs's picture

"Crushed" is a 3.5% decline in prices? Give me a break. On a 15,000 car that's a 525 reduction. And that's the catagory with the biggest decline, "luxury full size car". On a 40K diesel full size pick-up, there's a 200 dotllar drop. Come on, "crushed"? When I can buy a 4 year old KIng Ranch 6.7 Powerstroke for 25K at auction instead of the current 50K, I'll consider used-vehicle prices as being in the toilet.

As long as the world-wide PPT's are creating 3.6 Billion Dollars A DAY(!) into the world economey, NOTHING is going to get "crushed".

roddy6667's picture

On ZH, if prices go down, the sky is falling. If prices go up, the sky is falling.

Ben A Drill's picture

Drive a 2005 Tacoma. I'll keep it for another 10 years. This article reminds me of a FICO score.

1.21 jigawatts's picture

My DeLorean still runs great.  Only had to rebuild the flux capacitor twice in 30 years!

Proofreder's picture

It's gigawatts, dude -

can't even spell own name.  Sad.

BTW, what fuel are you using ??

chosen's picture

I have a 2002 Honda Civic stick shift.  I just replaced the timing belt (7 years past manufacturer's recommendation time, but it still worked).  I definitely needed to replace the clutch (which failed) and front brakes last year.  That's all I have done in 15 years, other than changing the oil every six months or so.  No digital crap, no gps, no tracking.  Oh, some nigger knocked my passenger side mirror assembly off, but that was real easy to replace myself.  The part only cost 60 bucks.

Patriotico's picture

Wow timing belt. Last time I had a car with that was in the 80s. It went all of a sudden 

Elco the Constitutionalist's picture
Elco the Constitutionalist (not verified) Mar 20, 2017 3:05 PM

It looks like the chart says wholesale prices are not "getting crushed" but returning to a more reasonable mean and not quite there yet.

Patriotico's picture

Now this is an interesting article. The tip of the iceberg.

 

ShepWave been nailing the short term volatility making money on long and short sides. Luvin life. 

 

Only analysts I know of who prove their calls with time stamped charts.

 

 

https://www.facebook.com/166578775325/photos/pcb.10154415126355326/10154...

 

 

 

https://www.facebook.com/166578775325/photos/pcb.10154415126355326/10154...

simpleminded's picture

My goal is to drive a car that costs me about $100 a month over the period I own it. It's not that hard to do if you stay away from car dealers.

http://maximizefreedom.com/2016/10/28/how-to-buy-a-reliable-car-for-abou...

roddy6667's picture

That is the same system I used. I would buy an older car from somebody's lawn or sometimes at the auto auction. I drive with a light foot. Acceleration is the killer of cars. My cars always go over 200,000. Garages cost $100/hour. The mechanic is lucky to get $20 of that after taxes. Find one that works under the table for $20 an hour. I bought an OBD II scanner at Harbor Freight for $50. Very handy when buying a used car.
Some people (read my wife) always worry about an older car breaking down. I got AAA Plus for about $105 a month. Within 100 miles, your car and you will be brought back home. No worries. For vacations, like going to North Carolina from CT, I got a small rental for $200 a week once a year. Never carried collision, just the bare minimum required by law.
Cars don't have to be expensive if they are not a substitute for self-esteem. You are not what you drive.

artichoke's picture

Get a bigger car, they are still cheap used.  How is acceleration the killer of cars?  You're in CT, you have to merge into traffic.

Fully agree with the rest of the post.

morongobill's picture

Some great advice in that link.

Ajax_USB_Port_Repair_Service_'s picture

I get big color brochures from car dealers almost every week. Most of the advertisements have a scratch-off game on them.

I ALWAYS WIN!

lakecity55's picture

Me, too! I just don't understand why I can't do that on the lottery!

Dammit, I want cash, not a car!

 

jago's picture

still this is nothing like the magical autumn of 2008.

german new leftovers offered at 1/3 off msrp.

bargains galore..  cars , boats , beach houses,  AAPL, gold!

i do miss that time.

 

 

 

 

OCnStiggs's picture

Wait a year. If the dollar crash/derivatives/stock dump/retirement plan collapse/sub-prime loan/student loan collapse/recession/depression/war with North Korea (pick one or more as you see fit) happens, the Euro Rollers will start to pile up again. I think here in the US, many of the European lease vehicles will never see the end of their leases. Many will get turned in well short.

Lostinfortwalton's picture

When I was growing up in the 60's you could not pay more than $40,000 for any home in my town. Now that amount of money won't touch a "luxury" car, just some piece of junk that will explode if you look at it crosseyed.

cherry picker's picture

We better do something about all the crosseyed people, maybe make them wear blindolds, otherwise there will be exposions all over, worse than 'terrorism'  :)

Old Pecksniff's picture

My parents purchased a house in the early 1960s for $7,500.  A new Ford Mustang cost $3,000.

GRDguy's picture

Yep, and after graduation my high school buddies were getting $3.50/hr at the local Ford plant. (KC Mo)

I got $5.00/hr  for computer programming and my new 1968 Firebird 400 cost $3900.  

Didn't really know how lucky we were till much, much later.

strayaway's picture

I remember a billboard in East Lansing circa 1968-1969 advertising Form Mavericks for $1,999 and Mustangs for $2,499; stick, six banger Mustang probably but still just $2,499. I was working as a union construction laboror at the time making over $7/hour.  

 

woody188's picture

I looked at condo's in Florida in 2009 for $25,000. Not a bad area either, just no buyers. It will come again.

Ben A Drill's picture

What I have noticed as my Tacoma gets older and older and as I age, my car insurance stays the same or goes up. With no change in my driving history I should add.

Sledge-hammer's picture
Sledge-hammer (not verified) Ben A Drill Mar 20, 2017 9:45 PM

Right on fellow Tacoma owner.  My Tacoma is my baby.

BryanM's picture

The cash for clunkers program in 2009/2010 removed a lot of the cars that would be in the used market today and hence the higher prices from 2009 forward...normal supply and demand. Now that shock is attenuating and prices are normalizing as more of those cars hit the market. From the chart it looks like they've 'crashed' back to normal.

PoasterToaster's picture
PoasterToaster (not verified) Mar 20, 2017 5:29 PM

Wholesale?  So the price banks charge each other for shuffling inventory is going down, because they are hooking themselves up again and making balance sheets conform.

When do we see retail prices drop?  Never, that's when.

ThreeRs's picture

The first manufacturer that gets a brain on and realizes the untapped niche of buyers with excellent credit who just want a basic car for five grand or less is going to make money the old-fashioned way--on volume. These will be the guys and gals that get all the bonuses and accolades for the brilliant genius idea of stripping their cheapest car of all the computer chips that cost five or more hundred to replace, all the bling, all the bullshit stuff that drives the cost of each unit ever higher, even to the goddamn power windows, and puts out a car with heat air radio for around five grand so motherfucking tax slaves like me can get back and forth to work with a reasonable expectation of not having a major repair in the first year. 

 

Hell, I'd trade my old one in every year, if I could get the same basic car without all the fucking upgrades and mandatory this and safety that. Why, this smart manufacturer would just keep my tiny little payment coming for the rest of my life, or damn near. And think of how the used ones would be sold in a flash, they're so cheap--that would actually help the poor. People might use more gas though, actually driving around. That'd increase demand, good for American oil companies.

 

Maybe somewhere, in a distant galaxy or state, somebody would build a state of the art refinery. I bet it would be beautiful and so safe and so fucking productive.

 

Whoever you turn out to be that gets this major brain on, please just build yourself a nice subsidiary in a separate location in America from your main, hire non union for half what union gets per hour, offer health insurance, a week's vacation after the first year, 401k, production incentives, like every other half-ass employer left in the country, and build us a goddamn cheap fucking NO FRILLS car, and please, make it sit high enough off the ground that I can plow through a small snowdrift when necessay. Goddamn.

 

I went used car shopping yesterday and today, mainly to teach my child the different tricks the dealers like to play on their marks. It's been quite a lesson, since they all three pulled different shit. Amazing.

 

I think I'll just keep my Taurus and forget about buying something different. At least I can still identify parts under the hood.

artichoke's picture

So, go to the auto auction yourself.  Or open a used car lot if you're really ambitious.

 

Hm that's a thought actually ...

Let it Go's picture

Prices on both new and used cars should continue to fall. Manheim Auto Auctions expects millions of off-lease cars to hit the market this year and says that will continue to rise in coming years. This is good news for used-car shoppers but does not bode well for the automakers. As used car prices soften consumers are less inclined to buy a new car.

The Federal Reserve past policy of easy credit will soon become a headwind to both future sales and economic growth. The article below looks into what has driven the auto market and why bargains await those who are patient.

http://brucewilds.blogspot.com/2017/02/auto-market-facing-over-supply-and.html

mtanimal's picture

Soros payroll has been too busy stirring up trouble lately to get new Escalades.  It's the burden they're willing to shoulder on the road to enlightenment and more free shit.  They'll be back.

Able Ape's picture

Gotta buy that 620HP Caddy - there's nothing like being stuck in gridlock with a high HP car!  

Discombobulated Hobo's picture

I've been reading about used car prices falling for quite awhile now, but, where I live, they've been increasing the whole time.  Especially trucks.  You won't find any used truck at a reasonable price in this area.

canisdirus's picture

They all went way up after the cash for clunkers program removed many cars from the market, while at the same time the recession caused people to keep their cars longer (because they were broke).

These led a rapid effort to cut lease payments and drop loan rates, which increased car purchases and leases, but eventually people do want to replace cars. The prices are sticky because the market was so tight for so long that all dealers have paid way too much for their inventory. Those that turn their inventory quickly will make a lot of money on the arbitrage before it trickles down, but eventually the used market will drop back to where it was.

You also have to consider that new cars are that much more expensive. Average transaction prices are something like $35k these days, so that pushes used prices up and makes them even stickier than just what the used car dealers are accustomed to.

If you wait long enough, they'll drop some, but don't expect it to ever get back to what we had in 2007...

reader2010's picture

Fuck cars. I ride bicycle.