Morgan Stanley: Used Car Prices May Crash 50%

Tyler Durden's picture

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):

  • Off-lease supply: This has already more than doubled since 2012 and is set to rise another 25% over the next 2 years.
  • Extended credit terms: Auto loans are at record lengths and lease assumptions (residuals, money factor) are at record levels of accommodation.
  • Rising rates: Starting from record low levels in auto loans.
  • Overdependency on auto ABS: The outstanding balance of auto securitizations has surpassed last cycle's peak.
  • Record high deep subprime participation: 32% of subprime auto ABS deals were deep subprime (weighted average FICO < 550) in 2016 vs. 5% in 2010.
  • Record high units of new car inventory: 2016YE unit inventory levels were near 10% higher than 2015YE, and are continuing to trend higher in 2017.
  • OEM price competition: Car manufacturers have capacitized to a 19mm or 20mm SAAR. At this point in the cycle we start seeing more money 'on the hood' to move the metal. As new car prices fall, used prices look relatively more expensive, which necessitates a decline in used prices to equilibrate the supply/demand imbalance.
  • Increased ADAS penetration: We expect auto firms to achieve nearly 100% active safety penetration by 2020, creating an unprecedented safety gap between new and used vehicles, accelerating obsolescence of the used stock. Rising insurance premiums on older cars could accelerate this shift.
  • Trouble in the car rental market: Due to a number of secular shifts, including how consumers access transportation options (e.g. ride sharing), car rental firms are facing stagnant growth, weak pricing and over-fleeted conditions. As these cars hit the auction, the impact on prices could be significant.

All of which Morgan Stanley thinks could spark a 50% decline in used car prices over the next couple of years.  So, for all of you pension funds out there scooping up all of the AAA-rated slugs of the latest auto ABS deals for the 'juicy yield', now might be a good time to review what happened to the investment grade tranches of MBS structures back in 2009 when home prices crashed by similar amounts.

Used Car Prices

And here are the stats...

Off-lease volumes have already doubled since 2012 and are only expected to get worse...meanwhile, lending standards have gradually gotten worse and worse... further revealed by the growing share of 'deep subprime' loans in auto ABS deals.


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. 


Meanwhile, none of the warnings about a flood of used car volumes about to hit the market has impacted new car volumes being pushed on to dealer lots.


All of which results in this fairly brutal outlook for used car prices:


Dear OEMs, the first step is admitting you have a problem.

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GotAFriendInBen's picture


Those bargain car prices will be offset by the devalued fiat

GUS100CORRINA's picture

Title: Morgan Stanley: Used Car Prices May Crash 50%

My response: Seems reasonable to me! But is MS telling the TRUTH? Is the analysis in this article reasonable? 

My answer is YES. Here is the real question to ask.


Drumroll Please .....................................................


No. 876: GDP Revision and the Business Cycle, February Household Income

March 30th, 2017

• Details of Economic Depression versus Recession, Recovery and Expansion

• No Other Major Economic Series Comes Within Three Years of the Headline Brevity of the GDP Collapse into 2009 and Recovery into 2011, or Comes Close to Matching the Subsequent 12.2% GDP Expansion

• Better-Quality Series Show Continued, Protracted Economic Collapse, with No Recovery of Pre-Recession Highs and No Economic Expansion

• Annualized Fourth-Quarter Real Growth in Gross Domestic Product Revised to 2.08% from 1.86%

• Fourth-Quarter Final Sales Growth (GDP net of Inventory Change) Fell to 1.07% versus 3.02% in Third-Quarter 2016

• Initial Reporting of Fourth-Quarter Gross Domestic Income at 1.00%, Gross National Product at 2.88%

• 2016 Annual GDP Growth Still Was Weakest Since the Economic Collapse, Both Before and After Inflation Adjustment

• Broad Outlook Continues for Non-Recovering Activity and Economic Disruption

• February Real Median Household Income Increased, Still Holding Below its Pre-Recession High and Signaling Consumer Liquidity Stresses

Yukon Cornholius's picture

The flood of Acura, Infinity and Lexus SUVs hitting the used car market in the very near future is going to be ridiculous. And you can have any color you'd long as it's silver, and maybe a Chinese soccer mom to go with it.

BaBaBouy's picture

There was a report out that electric self driving cars could render the whole current car fleet obsolete.
Success on the self drive software would make them the safest cars on the road by far...

BaBaBouy's picture

>>>>> safety to drivers and be ’10x safer than current cars’,<<<<<

HERE'S The Article .............

Analyst warns of Tesla’s Autopilot machine learning potentially rendering all other cars obsolete

Before introducing the second generation Autopilot hardware, Tesla CEO Elon Musk said that once the first truly self-driving car is available, all other vehicles without the technology will have a “negative value”.

Echoing the idea, Morgan Stanley analyst Adam Jonas said this week that they started warning their clients that if Tesla is successful in enabling fully self-driving capability on its current vehicles equipped with the second generation Autopilot hardware, it could render all other cars obsolete.

Fresh off his note about the Tesla Model 3’s self-driving capability giving ‘superhuman’ safety to drivers and be ’10x safer than current cars’, Adam Jonas went on CNBC yesterday to drive his point.


Fuck Muskie and his android sheep car. Bullshit PR to pimp elitist only transportation for the moneyed classes only. Everyone else is supposed to walk, or take the bus. 

Me and my 1978 pick up truck will soldier on with $23.00 fuel pumps from NAPA, complete brake replacement for under $500.00, and replacement load range E tires all round for about the same.

When all the elitist assholes are sitting around in their locked down dead cars after a North Korean EMP, i'll be out cutting my 10,000 th cord of firewood, laughing my ass off at the change the world dip shits that thought ignoring natural law was a good idea.  

centerline's picture

$500 for brakes?  Should be able to do that for under $100.  Not hard to do.  Drum brakes can be a pain... but with the right pliers it isn't so bad. I do my own at home (all disc though).  Whole car in under an hour.  Pads bought in advance on internet for the best price I can find.  Big store prices here are a rip off.

If I had a truck like that I would keep it running also. 

1980XLS's picture

Yup, there's a Reason AZO, ORLY, AAP stiock up in straight line for years. Huge mark-up in that shit.


Good pads $25  per axle. Rotors $25 a piece.


Rotors so cheap, it's not even worth machining them. Never liked machining them anyway. Removing mass from what is effectively a Heat sink, never a good idea.

Bigern's picture


Free shipping. Just got front control arms with upper ball joints, and front set of lower ball joints for $85.

Pair of front sway bar end links for $24.

8 new coil packs for $40.


Autozone wanted almost ten times that for coils. Plus tax.


01' Lincoln LS

Mano-A-Mano's picture
Mano-A-Mano (not verified) kavlar Mar 31, 2017 7:36 PM

I'm retired South of the Border. There they fix everything cheap.

Can't wait for you all to scale Trump's wall to come down here when SHTF.

Mano-A-Mano's picture
Mano-A-Mano (not verified) stizazz Mar 31, 2017 7:40 PM

Nope. Love my solitude.

bob_bichen's picture
bob_bichen (not verified) Mano-A-Mano Mar 31, 2017 8:38 PM

RE: chronic SPAMMER  kavlar, techies-r-us, lexxus, stizazz, mano-a-mano, etc.   (ALL THE SAME PERSON REPLYING TO HIS OWN COMMENTS)

You have NO IDEA how troubled this individual, the Spammer With One Hundred Log-ons, really is.  He has trolled and spammed his website crap on here forever, always with the same macabre conversations with a long series of "imaginary playmates." It really is quite perverse and whoever "he" is, he seems to really get his rocks off voting himself up arrows and replying to his own comments, and also appears to have no life beyond making off-topic comments with his link to the SPAM-, TROJAN-, VIRUS-INFESTED  "biblicisminstitute,wordpress,com"  (sometimes disguised as a short-URL  )


<<Tonight's little commentary is classic --- one Invisible Friend (Mano-a-Mano) "lives" in Mexico and another Invisible Friend (stizazz) "wants to be his roommate."    Such a fantasy life -- do all of the "Invisible Friends" wear fishnets and makeup as well??  >>

He shares this pathology with "Audio Feeline " "blue fin" AKA "TrollAndDump" (formerly known as XYTHRAS - since banned) whose "dailywesterner,com" is, if anything WORSE than the biblicism fetishist, also SPAM-, TROJAN-, VIRUS-INFESTED.

Other ZHers  may wish to take one minute to send an email to requesting that all of the "imaginary friends" (in the list below; copy and paste)   be permanently banned for spamming.

As you do that, use your imagination to try to conceive of what type of whackadoo would spend their life in pajamas, fake eyelashes and high heels, eating stale chips and drinking cheap soda from the dollar store, popping zits, and spamming zerohedge. 

Many of the following have been banned but, like crabs and cockroaches, they just seem to come back.  The "short list of imaginary playmates" includes:

Audio Feeline
blue fin

Son of Loki






Aristotle of Greece





Yippee Kiyay


SumTing Wong

King Tut



Holy hand grenade of Antioch,

etc. etc. etc.

Adullam's picture

Nice list. Except I shouldn't be on there. Take a look at my posts. Few challenge these serial spammers more than I do.

I have nothing to do with either of those sites (I actually do have my own site which has NEVER been referenced by me in any post on this site) or those names, and have reported them as well.

Luc X. Ifer's picture

The title needs a small correction, the crash is due to the fact that in 5 years nobody is going to need anymore the gas-burning decrepit iron junk on 4 wheels.

In 5 years, the norm will be purchse of electric and potentially AI powered cars. I'm good with the electric part, don't find funny and attractive the AI part at all.

Adullam's picture

When I want to buy a vehicle I look for older, low mileage, ones with no rust. Fix them myself for the most part, and keep them maintained. Sure, some newer ones get better mileage than my truck, but I can drive for years and years and never spend as much on fuel as I would in buying a new or almost new one.

Spending money on a rapidly depreciating asset like a new car / truck is just about the dumbest economic decision a person can make.

Abitdodgie's picture

Rock Auto Rotors always warp, then it costs to send them back not worth it.

zuuma's picture


What pads?  $20 / axel cheapo china pads?  Ok if you live in Kansas.  If in a mountain state, cheapo pads will be glowing & smoking 1/4 of the way down.

No thanks.

WHich truck rotors can be had for the $60 remaining in your cheapo budget?  IF a $30 rotor can be found for 78 F-150, it will be from the crappiest chinese laundry.  Likely pre-warped from the factory.  If you can find someone to turn the old ones, it will still be $25-30 for that.

Then, you'll have thinner rotors to enjoy the $20 pads.

OK, if you don't need to stop much, I guess

$500 is a much more reasonable DIY estimate for a quality, long-lasting brake job

1980XLS's picture

Go to the site and look at the brands & Prices before making stupid comments and assumptions

All name brand stuff, with plenty of Choices.


Rotors for Trucks and SUVs run alittle more  (like $40-$60)

valjoux7750's picture

I can do the front axle on my 09 pontiac g8 for around 120.00 try going to a repair shop and see what they charge.

Feeling lazy one day I went to pepboys to have them replace eight sparkplugs on the same car, the asshat behind the counter told me 345.00. I said 345.00 DOLLARS? he said we don't have to do em, I said damn right you don't! Bought the plugs and did em myself in under an hour :)  it's good to know how to fix shit....

1980XLS's picture

I have a 2008 G8 GT  Magnetic Gray, Premium & Sport Packages.

Best car ever.

STP's picture

Rare too.  I've only seen a handful of G8's and very, very few GT's...  (this from a guy, who spots 1972 Camaro Z/28's on the other side of a freeway in about a 1/4 second).  My little sweetie is a 1974 Corvette Stingray, in Dark Metallic Brown, which was basically a 'brother' color back then, so they didn't paint many that way and I've only seen two, in person.  Factory four speed, but came with the lo-po L48 (which has been happily mod'd)

1980XLS's picture

Actually all V-8 G8s were GTs by definition.  It is the GXP with it's LS3, brembo brakes, and available manual transmission is the rare one.

Available only in 2009. Low mileage used ones in excellent condition are still going close to their original MSRP.


That car lives in the US currently as the Chevy SS sedan. But only for a couple more months, untill Aussie production ends this year.

glenlloyd's picture

"I have a 2008 G8 GT  Magnetic Gray, Premium & Sport Packages.

Best car ever."

You must mean the rebadged Holden Comodore?

glenlloyd's picture

I love it when people fall back on equating price with quality, that old axiom went down the toilet years ago.

As for automakers, they can keep their new crap, I don't want it. I have two cars I know how to maintain and they don't come with free tracking software either! I'm pretty sure at this point if the self-driving crowd is any indication of 'safety' that they can keep that too.

A new car used to mean something, it meant that you had money (i.e. savings) and could afford it. Now all it means is that you were the stupid schlub that was dumb enough to sign up for the mortgage sized auto loan. FFS people if you want to stop throwing away your wealth then stop signing up for the debt!!

Abitdodgie's picture

If you use cheap parts you just keep doing the same job every six months.

CJgipper's picture

Drum brakes are super simple to work on.  You buy a replacement vehicle with disc brakes.  Drums - never again.


Parts only, for everything - new drums, rotors, wheel cylinders, calipers, parts kits, shoes, and pads. Do it right the first time, then just replacement pads and shoes for about the next 20 years as a result. 

in4mayshun's picture

Either Tesla better have some awesome pothole avoidance software or California better pony-up the $trillion$ or so dollars needed to fix their roads, cause barring that, a self driving car will need constant maintenance because of the roads.

pitz's picture

The roads themselves will need a trillion+ of investment just to support self-driving cars.  To say nothing about the self-driving cars themselves costing a million bucks a piece.

Bigern's picture

The self driving car will be the easiest target for stop-and-grab. I'll make a guess that they will stop for any large front facing obstacles in roadway. The car is not smart. It will stop cleanly for all gang-bangers patiently standing in the street, ready to remove the burdens inside the vehicle. No woman should ever want a self driving car. A gift wrapped box for all the sickos.

jcaz's picture

Damn, dude- you're gonna blow Musk's cover right there-  hey Elon- how about POTHOLES???

Great point.

FireBrander's picture

Go to a snow state if you want to see potholes. EVERY year, in the spring, I spot at least 2 potholes that would seriously damage your car upon a direct full speed hit. These things are so big, the city rushes out to block off the lane until they can get a crew there to fix it.

Oh, and how about where the roadway buckles from the summer heat creating a foot high "speed bump" on 70mph highway...self driving is going to be fun to watch...

jerry_theking_lawler's picture

If you leave in the northern will be dead with the rest of us after an EMP. If the nuke plants can't get back up an running they will all melt down. Count the running reactors and the impact this will have. You better be getting those wheels in the wind to South America.

Mtnrunnr's picture

1) North Korean EMP? what world do you live in? 2) the Elite elite have EMP proofed everything. 3) that 1978 pickup with you driving it doesn't change the fact that self driving cars are coming and they'll probably make it illegal to drive your own car.  I think thats bullshit, but it's happening. 4)10,000 cord of firewood? that is way over doing it and do something else with your time.

SilverRhino's picture

Yeah but I want to be able to turn the goddamn thing off in order to do stupid shit

-  Every man still possessing a set of testicles.  

Bigern's picture

"They" want to be able to turn it off too.

bilbert's picture

"Yeah but I want to be able to turn the goddamn thing off in order to do stupid shit"

Right on, SR - I've heard NO mention of self-hooning automobiles, although the Focus RS has a "drift" mode that allows a shitty driver to get sideways, but not fuck up...........

BennyBoy's picture


I'll wait until the fifth generation Autopilot hardware.

Elon is a great self promoter!

Cardinal Fang's picture

Lol, which is worse? Autopilot hardware or software?

the issue with AI is the same problem with proving the existence of the multiverse, you cannot program a machine to predict infinite outcomes.

So they will settle for less, people will die thinking their machines are 'smart', lawyers will get rich and cars will suck worse than NASCAR.

RozKo's picture

Bullish for bar owners, you can now go out and get drunk and you won't be driving home, might even cop a feel from the bar slut in the back seat?

tmosley's picture

Too bad police like to go into bars undercover and pull random people outside and give them PI citations.

Bars are dead until this behavior stops.