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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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.

Whopper Goldberg's picture

Being retired now , in the summer I seldom use my car anymore,.  IN fact sometimes I have to move the car to keep it from getting flat spots on the tires.

The rest of the time I am on my electric scooter,  which holds 3 big bags of groceries  and costs about 25 eurocents to charge to take me 30 miles.  I have spare battery box to take with me for longer jaunts.  All lithium  very lightweight yet powerful.

roddy6667's picture

Retired in China. I take the bus (13 cents US), subway (26 cents) or taxi (cheap). What I paid to own a car in America funds my travel 3X a year here. We are going to Thailand next month and Tibet in the Fall. Thank you. Thank you public transportation.

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.

Whopper Goldberg's picture

here in Europe it goes by percentage. I have had no accidents or claims and pay 15 euros a month for liability only ,  another reason I buy 20 year old used cars.

As for speeding tickets here, you can get as many as you want,  as long as you pay,   it doesn't count as ''points''.

Most speeding tickets are by camera and you get it in the mail.

seldom see cops pulling anyone over for speeding.

Sledge-hammer's picture

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

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.

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.