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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Tom Green Swedish's picture

Auto sales tumble in the canary in the coal mine.

Last of the Middle Class's picture

We'll make it up on volume with massive sub prime lending is now finding it's way into the used market. This is how you get all nice and warm with great sales screwing up one market with massive subprime leasing and end up creating bubbles a lot of people have to pay for.

_SILENCER's picture

So, is now the time to move up to the RS7?

JailBanksters's picture

That's what people want, cheaper goods in the future.

How could this not be a good thing !

Everything should be cheaper in the future.

Shpedly's picture

I wouldn't be sounding any fire alarms just yet for the used car market as a whole. Just like the stock market the used car market has always had extreme peaks and valleys. Long standing successful used car dealers have seen this shit coming and are well prepared. The late to the party dealers operating on customer finance revenue only, will be folding like cheap suits. Used car dealers watch the market just like professional equity traders. The Carmax's and Autonation's will take a hit because their pipeline is so deep but they will recover and be fine. Just like any trader, used car dealers welcome some good volatility. I know 2 dealers personally that could retire on what they made from the wholesale dumping of large SUV's when gas hit 4 dollars. They bought them hand over fist for half of trade in value, thinking gas prices would fall. When gas took a crap, they doubled or even tripled their money.

Nockian's picture

Car market in the UK is very odd. The dealership forecourts are overflowing with nearly new vehicles, but there are very few obvious buyers. The showrooms are still selling new models because of the easy credit facilities-people are effectively renting for 3 or 4 years, then the rental goes back on the forecourt.

The problem we have is that this kind of car rental comes with the usual 'unowned syndrome'. Even youngsters are buying new vehicles like Audi A1s and thrashing them about, then getting into another new rental. All the used cars are loaded with extras which are by then out of warranty unless it's a Kia/Hyundai-which naturally means it's used price remains relatively high for its marke placement.

We have a 14 year old 3 series Beemer diesel with 180K miles on the clock, runs well, but has failed central locking, wheel arch rust and is getting a bit scruffy. We thought to take a look at what's on offer-decided to keep the Beemer until it goes bang. Nothing I saw is built like our old car, lots of fancy gadgets, but I can sacrifice them for a car like ours which has had no major issues, costs nothing per month and still does 60mpg all day and can top 140mph.

As for used prices falling-not a sign of it. I would probably buy a used Lexus, but they are priced at a point which reflects the credit/new price, not at a realistic level for a vehicle out of warranty. I really wonder why I would spend the best part of £21K on a thirsty, 3 year old vehicle which is out of warranty ? Maybe they ship the used cars abroad, or just aren't concerned with the stock building up on the forecourt as long as they continue to sell new lease cars ? I suppose it's just space, if you have an out of town dealership you aren't paying much for the land, so might as well fill every inch with used stock and wait for the odd buyer to come through the door.