Tag Archives: off-lease

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

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).

https://i1.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/05/17/2017.05.17%20-%20Autos%201.jpg

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 auto land.  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. 

  • 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…

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/03/31/2017.03.31%20-%20Used%20Car%202_0.JPG

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/03/31/2017.03.31%20-%20Used%20Car%203.JPG

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.)

https://i0.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/05/17/2017.05.17%20-%20Autos%202.JPG

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.

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/03/31/2017.03.31%20-%20Used%20Car%201.JPG

Source: ZeroHedge

 

Advertisements