Carmageddon: All 3 Major Auto Markets Contract YoY For The First Time Since January 2009

Tyler Durden's picture

For the first time since January 2009, sales of cars declined year-over-year in all three of the world's largest auto markets of Western Europe (-6.8%), China (-1.8%) and the United States (-3.7%).  Combined, these three markets account for roughly 70% of the world's auto sales (chart per Bloomberg).

 

And while auto OEMs spent the first part of 2017 ignoring the growing signs of trouble facing their industry, some are finally starting to admit that all is not well in autoland.  As we noted a couple of days ago (see "How Is This Not A Recession? Ford To Slash 10% Of Global Workforce"), Ford just announced plans to cut about 10% of its global workforce.  Meanwhile Nissan Motor is forecasting a surprise drop in profit this year and Toyota Motor expects an 18% decline as well. 

As we've been saying for months, this is likely just the beginning of what may be a very painful several quarters for the auto industry.  So what else could go wrong?  Here is a just a short summary from Morgan Stanley's auto team, led by Adam Jonas, of the things that could cause used car prices to crash by up to 50% over the next 4-5 years...which, of course, is probably not great news for new car prices either (Executive 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.

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...

 

...as further revealed by the growing share of 'deep subprime' loans in auto ABS deals.

 

But lenders are starting to get worried and are tightening lending standards for the first time since the great recession.  (Note: Shows net percentage of respondents reporting tightening standards on consumer loans for new and used autos. Negative numbers indicate loosening standards.)

 

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

 

All of which results in this fairly brutal outlook for used car prices and, by extension, the auto market generally.

Used Car Prices

 

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

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Nice Try Lao Che's picture

30 year leases bitchez! (CLUNKERS 4 CASH)

knukles's picture

It's different this time.  The new Chevy Bolt (Volt) didn't get a 5 star rating.  That's why.  Not everybody can afford a Tesla.
Unless you're a Banker, Politician or on Gooberment Assistance

Bunga Bunga's picture

Don't worry, with the new Tesla Model 3 it's different this time.

cossack55's picture

Heard a chevy truck ad on radio today....47K Sierra marked down to 33K.   I'm waitin' for 16K

GadExp's picture

I work at an auditing firm and one of our clients is the largest regional auto dealership.

 

Here’s what’s going on, straight from the horse’s mouth:

Sales are WAY UP!!! 

 

But that’s the trick!!!

Sales VOLUME is up, but sales REVENUE is down. 

 

At the same time, Inventory is up.   Some models that couldn’t be supplied previously, now they can’t sell them all.

 

The reason for all this is that China sales have tanked, and the factories are struggling to allocate inventory.  As compensation, corporate is pushing inventory on the US dealers whether they like it or not – contractually, they have to take it.  The LAST thing corporate will allow is reduced manufacturing.  That has all sorts of horror implications that they just won’t – CAN’T allow.

 

Oh, and to further push volume, sale prices are capped.  If a dealer sells a car for too high of a price, then they are actually contacted by corporate and reprimanded.  “If this continues, then you will be penalized.”  Imagine those poor sales reps!!  You can’t not take more money, even if the customer is willing to pay it!

 

Here’s the icing on the cake – this info is from MID-2016!!!  Ha ha ha ha ha ha ha!!!  If this sort of crap was going on last year, think of where they are now in 2017!!!  Think of where they are headed!

 

It’s a matter of time fellas!  Mark my words, the auto industry will play a central role in the imminent global financial apocalypse! 

…along with student loans and house mortgages! 

…along with retail and commercial real estate!!!  

 

 

…all these trailing behind the derivatives nuclear explosion!!!!

GadExp's picture

 

Oh!  and by the way!!!

 

I don't screw with "investing" on any public market.  I hate the idea of putting my assets in the control of some whimsical, maniacal deep state/banker board chairman.

 

But I DO plan on buying a nice truck at the end of 2017!  And I'll buy the entire think on loan from the fetcher bank!!

 

I'll bet everything I own that I'll be paying that truck off in 8 years with worthless hyperinflated dollars.  I'll basically be getting that truck for free!!!

 

That's a market bet I'm willing to make.  

Chauncey Gardener's picture

So, what's your choice? Made-in-Mexico Chevy/GMC? Aluminum beer can Ford? Fiat RAM? Or a Toyota Tundra with a Nascar-proven V8? If the damn aluminum Ford still had a metal bed and a V8 instead of a boy-racer V6, I'd go there. The dealer channel is stuffed by ALL manufacturers. We have a local exotic car dealership LOADED with Maserati SUV's. It will be fun to watch the desperation mark-downs on that aging inventory...

Benito_Camela's picture

I really can't wait to see what happens to the prices on these new Alfa Romeo 'luxury' cars when there are still 15-20 of the 2017s sitting on the lot come December. 

The Real Tony's picture

When auto sales fall in China the population increases greatly... less fatalities.

Benito_Camela's picture

Thing is, given economies of scale and government subsidies/tax breaks, it probably cost those assholes only $12K to manufacture and ship the truck to the dealer. 

sessinpo's picture

You should be able to get a fairly new one (1-2 years old) for about 5k in 2 year

FreeShitter's picture

Broke ass niggas need longer loans

Nice Try Lao Che's picture

don't 4get the grape drink cupholder

JRobby's picture

 

Done!!!!

Millennial's don't want to buy your SUVs now! They want a scooter or a "smart car" or no car.

Yukon Cornholius's picture

Do uber drivers do drive-bys? If not, the next gen gangstas might have problems settling scores.

HRH Feant2's picture

My sister's "kids" (both are in their 20s and one is married with 2 kids) don't own a car. Why would they? She works like a dog and then shows up to cook them breakfast or take them out to dinner or grocery shopping. No need for them to work or buy a car. Snowflake Mommy has it covered!

Oh , this is good, one of the little snowflakes almost burned down her rental after smoking outside and failing to fully extinguish the butt. Downstairs neighbor was the one that realized the porch was on fire and called 911. Luckily no one died. Especially the two kids.

Dominus Ludificatio's picture

This is the same argument used in 2008 to push electric cars because they were claiming young people were no longer  interested in cars. Yet sales doubled ten years later.  Maybe money  has something to do auto sales .

So It Goes's picture

Mania continues.

Bought a new car.  USAA Fed Savings Bank - notoriously conservative - offered me 125% of purchase at 1.99% financing for 5 years.  

Crash is coming.

chicken_goose's picture

It's only just begun, these auto sales are going to crash big time in the coming months. We'll be seeing YoY declines comparable to (but most likely even greater than) those seen during the GFC.

Cordeezy's picture

I still haven't seen any great deals on used cars around yet. 

 

www.escapeamazon.com

 

 

Sonny Brakes's picture

They're not coming. Cars are now like houses. Banks will not allow the seller sell below what the previous seller of the house sold it for, they simply will not approve such a loan. The bankers will never let their debt-slaves conspire against their interests. 

sessinpo's picture

Unfortunately, cars are well known to be depreciating assets while houses are generally accepted as appreciating assets so I don't think the comparison will work.

Stan Smith's picture

Actuarialy speaking, a car isnt even an asset.   It's a liability.    So there's that.

Magooo's picture

THE SECOND COMING

    Turning and turning in the widening gyre
    The falcon cannot hear the falconer;
    Things fall apart; the centre cannot hold;
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned;
    The best lack all conviction, while the worst
    Are full of passionate intensity.

    Surely some revelation is at hand;
    Surely the Second Coming is at hand.
    The Second Coming! Hardly are those words out
    When a vast image out of Spiritus Mundi
    Troubles my sight: a waste of desert sand;
    A shape with lion body and the head of a man,
    A gaze blank and pitiless as the sun,
    Is moving its slow thighs, while all about it
    Wind shadows of the indignant desert birds.

    The darkness drops again but now I know
    That twenty centuries of stony sleep
    Were vexed to nightmare by a rocking cradle,
    And what rough beast, its hour come round at last,
    Slouches towards Bethlehem to be born?

 

Booked's picture

Is the "rough  beast" orange, by any chance?

mc225's picture

well, maybe as a species we were mistaken to have ever pegged the 'health' of the 'global economy' on 'auto sales' in the first place. as it is, 'they' have been yammering on and on about this for decades on end... 'such and such number of auto sales... blah blah blah'... like, who cares, really?

Sonny Brakes's picture

How soon before the government mandates everyone to purchase an automobile? We can call it Trumpcare.

Mr.BlingBling's picture

It won't be a mandate per se. They'll just ensure that you can't afford the insurance on a car without the state of the art Hastings Autopilot.

Cash Is King's picture

Seeing ads in my neck of the woods offering new car deals that include 0 down & no payments for 6 months. Wouldn't it just be easier to give the car away, write em off as donations from taxes they don't actually pay in the first place?

On a side note, 2 weeks ago I spotted what I swear was at least 1 channel stuffing lot example out here & snapped pics. No way to upload them to show em off but I still think it's happening on a global scale. Crazy!

Falling Down's picture

KIA is offering 0 down, no payments for 5 months, across the board. All models, all U.S. dealerships.

Maynard G Krebbs's picture

Do you also get the rebates on top of the free financing....? if so, then I can use the rebates to pay off all my credit card debt. Jackpot! 

HRH Feant2's picture

I have seen those adverts, too! I thought, sure, dumbass, buy that car and don't make payments for six months! You may not pay now but you sure as hell will pay later!

Falling Down's picture

I shared my latest information about Ford's phony numbers here, the other day. Bears repeating.

My Ford salesman buddy told me that company is desperate to sell cars, after he told me recently a woman with a FICO of 350 drove away in a shiny new Phord. The latest is the dealers are contacting folks with many months on leases, and folks who just recently bought new vehicles, to see if they're interested in replacing their current ride. He said fhe used lots are overflowing, too, especially with Fusions. Their resale value sucks, and the dealers are having a hard time moving both new and used Fusions.

Mr.BlingBling's picture

And there it is . . . the trial balloon of markedly higher insurance rates for "obsolete" vehicles without the Hastings Autopilot.

Bobportlandor's picture

Bad environment for impeachment.

As corp earnings continue to get hit, I predict the DNC will go the way of the USSR

earleflorida's picture

sadly, the chinese are buying 'Chinese' and keeping us/yuan home bound...   *(FX damn you?)

as they've retrofitted/ reversed engineered ussa free technology into their colossal OBOR infrastructure with 'Made-N-China`Put-puts''... at 1/6 the cost!!!

Shpedly's picture

Trust me. The Chinese are still buying the shit out of our used Mercedes, BMW's and Audi's.

The Real Tony's picture

The Chinese don't drive Audis. I live in a predominate Chinese city and have yet to see one Chink drive an Audi granted the Chinese are ultra rich where I live.

rejected's picture

"sadly, the chinese are buying 'Chinese' and keeping us/yuan home bound... "

Sounds pretty smart to me...

earleflorida's picture

give a H/T to Pepe Escobar's excellent article: jan.19,[?] 2017 "Here's how the Trump Presidency will play out" (starring Mr. X)  posted by TD/ZH

TalkToLind's picture

These dealership jokers keep sending me letters telling me how they can put me in a brand new car while lowering my current car payment. But how could they possibly get my payment lower than ZERO? (I have no car payment; I own them all free and clear.) I guess they'd just have to pay me to take one of those new POS.

Bernanke&#039;sDaddy's picture

Bundle a new car payment with student loans.

 

WHAT'S THE FUCKING PROBLEM? Don't need some bullshit Ivy league MBA to figure this shit out.

ThanksIwillHaveAnother's picture

Waiting for 50% off on a 2017/2018 Porche Boxster S with all the fixins.   

yogibear's picture

Those millions of H1B Indians are going to need new cars to go along with the repossessed houses they will get from  fired Americans once they have their green cards.

man from glad's picture

$30,000 for your basic pickup truck? And cars a similar rip-off. No thank you. Just not worth that kind of money!

Benito_Camela's picture

Total rip off. $30K won't even get you a NICE pickup truck. There must be some serious accounting malfeasance going on with some of these finance companies. Even if interest rates were 0%, if you put down 10% or $3K on a $33,000 truck, you're looking at a monthly payment of $550 (plus insurance, plus maintenance, registration, inspection, etc.) for five years. No thanks.