With so many sub-prime auto loans, and a high percentage of leasing over purchasing, it seems like the math has finally caught up to the reality on the streets. Literally. The declines are massive (except the one that gained just a tiny bit of value).
From Zero Hedge:
America’s favorite rapidly-depreciating asset is now losing it’s value fast than ever…which is probably not good news for an auto market in which 25% of people were already underwater by an average $3,635.
According to Black Book, average used car prices have dropped 17% over the past 12 months as America’s complete transformation into a rental society has flooded the market with off-lease vehicles. Per Bloomberg:
The average used car lost 17 percent of its value in the past 12 months, dropping from $18,400 to $15,300, according to data from Black Book, an auto analytics company. That annual depreciation figure has been increasing steadily, too. The average used car today depreciates nearly twice as fast at it did in 2014, when the annual rate was just 9.5 percent.
“We’ve got ourselves in an oversupply situation,” said Jim Hallett, chief executive officer of KAR Auction Services Inc., which sells about 5 million used cars every year. “Nobody is interested in stockpiling inventory right now.” Translation: If you’re trading in a used car, don’t expect to get much of a deal.
So, which cars are holding up the best? Well, if you have a gas-guzzling pickup or SUV then you’re in luck because folks just can’t get enough of that $2.33 per gallon gasoline at the moment. But, if you’re more of the practical type who likes to buy smaller cars then you’re losing over 20% of your original purchase price each year.
But, there is a silver lining: Per J.D. Power’s July 2017 Used Car Industry Update, if you’re lucky enough to own a 2015 model year large pickup then you’re minting cash…everyone else, not so much.
Of course, strong used car pricing is a critical component required to prop up the overall auto market. While Americans love their brand new cars, if used car prices become too soft then substitution can hurt new car sales. Add to that the impact of falling residual values on the finance arms of the auto OEMs and you have all the ingredients required for an auto market meltdown. Unfortunately, the volume of lease returns is only expected to grow even more in 2018 with returns expected to approach 4mm units.
Something tells us that Ford is dangerously close to realizing that “plateaus” have cliffs on both sides…