By on April 5, 2017

used cars used car lot

The auto industry has really turned a corner over the last decade, but this year has been underlined by an unsettling lack of interest in new vehicles — potentially hinting at the return of a industry-wide crisis. The good news is that abnormally high used car prices are sinking like a stone. The flip-side of that coin, however, means that we could be approaching darker days as more consumers shy away from the new vehicle market.

Most carmakers spent last year enjoying record sales but seemed keenly aware that the market was about to plateau. However, 2017 sales have stagnated more than predicted, with rising interest rates and deflated prices seen on second-hand automobiles. It all looks very pre-recessionish and some analysts are beginning to make fearful noises. 

March’s industry-wide deliveries slowed to a seasonally adjusted pace of 16.6 million annual units, far below the expectation that the market would accelerate to 17.2 million after the normal late-winter lull. At the current sales rate, deliveries are expected to fall over one-million units shy of last year’s high — but there are signs that even those numbers could be wildly ambitious, as lackluster demand isn’t the only problem.

From Bloomberg:

“Somewhat ominously, today’s market increasingly resembles one we described in ‘A Triple Threat’ (Feb. 20, 2004),” Deutsche Bank analysts Rod Lache, Mike Levine and Robert Salmon wrote in a note on Tuesday. “In that report we highlighted the risks to the industry from rising rates, rising negative equity in vehicle loans and used vehicle-price deflation. This could lead to deteriorating affordability, delayed trade-in cycles, consumer shifts from new to used, diminishing credit availability and deteriorating mix/pricing.”

We’ve written extensively on the abysmal state of the subprime loan situation, as well as the bizarre lengths companies are willing to go to reclaim the vehicles fewer and fewer lessees are able to pay for.

“Credit performance for both prime and subprime auto loan ABS is expected to continue to deteriorate, although at a moderate pace,” analysts at Bank of America Merrill Lynch said in a report from last week.

There is nothing moderate about the deterioration of used car prices, though. According Deutsche Bank, used vehicle prices declined at an accelerated rate of 7.7 percent in February after an average fall of 3.5 percent during the first nine months of 2016. Meanwhile, automakers were also offering discounts on new product. Incentive spending went up another $450 per vehicle last month as many manufacturers faced an inventory surplus.

Some of this is due to off-lease supply, though demand remains below average as people are simply less willing to let go of their current vehicle. The number of recycled cars has declined to about 11 million per year from nearly 14 million a decade ago. While there has been an influx of new drivers in recent years, it hasn’t been enough to account for the overall decline and they seem less eager to buy a replacement vehicle than anyone else.

Regardless of whether or not this spells doom for the auto industry, there are a few things that we can expect in the short term.

Swelling incentives aside, average new car transaction sums are likely to increase overall as trade-in values plummet and longer-term loans become the norm. Trade-in cycles might change too, as it would take longer for consumers to build positive equity in their current vehicles. Also, anticipate credit to get a little wonky as lenders become more cautious over collateral risk — especially for long-term leases.

While the annual forecast doesn’t look great, at least we have those temporarily low used vehicle prices as a silver lining to this dark and inauspicious cloud.

Get the latest TTAC e-Newsletter!

55 Comments on “The Industry Might Be Facing Disaster, But at Least Used Car Prices Are Down...”

  • avatar

    The industry fundamentals are far more solid today than they were in 2008/2009. Concern is relatively overblown.

    Subprime is still a fairly small percentage of loans, and repossessions are still historically low (people will pay their car loan before their rent or mortgage because it’s much harder to be evicted, plus, people need to get to work).

    Manufacturers are not as bloated as they were before – there is not as much excess capacity, contracts are more flexible. It is now much easier to cut shifts and idle production lines than it was before.

    It’s a normal ebb and flow. Sure, there will be a decline in sales at some point and used inventory will climb, but adjustments will be made, the slack will be absorbed, life will go on. More than likely it will not result in the shock drop of the last downturn unless other aspects of the economy writ large implode as well.

    • 0 avatar

      You make a few good points, but in 2008 the length of a loan 60 months, today they are going to 84 months. Wages are stagnant and the average transaction is really out of site. As far as going to work vs rent; it is not going to get better if the jobs are not paying enough to make either. There is a crisis and it is about to become a disaster for many people.

      • 0 avatar

        There seems to be a misconception that SUBPRIME loans can stretch to this length. They do not. 36-48 mo is the norm, 60 in certain cases.

        • 0 avatar
          87 Morgan


          I think the premise is that long term loans, 72 and higher, are inherently sub prime loans even if the interest rate and or credit profile don’t necessarily indicate a sub prime borrower. A 710 FICO with no money down going 84 months at say 4% through Navy Federal CU is not generally considered sub prime, but it is. With used values plummeting said buyer will be in an be in even worse straits in 3 years on the loan balance vs value of the collateral curve.

          As for long term loans, I was placing paper with Bay View in 02′ at 96 months and 250% of NADA retail for the right credit profile. Shockingly, Bay View is no longer in business..

  • avatar
    DC Bruce

    As the odo on my truck rolls past 51,000 miles with nary a repair in sight (on a brand that’s not Toyota), perhaps concerns about reliability don’t justify a 3-year replacement cycle . . . or even a 5-year cycle for most people.

    Secondly, for most people, most of the time driving is a chore. It’s not at all fun. The auto ad fantasies of a car whooshing all by itself through some beautiful natural setting (or, worse, empty city streets on a dark and rainy night) become increasingly disconnected from the reality facing most drivers.

    Finally, what is in a new car that makes it a must-have as compared to a 5-year old car? Not much that I can see. I have a 9-year old Honda Pilot with 116,000 miles. What is in the new ones that would want to make me trade the old one? 7 more horsepower? 2-3 more mpg? 1 speed more in the transmission, or if I spend more money, 4 speeds more in a transmission that is universally condemned by everyone who has driven it? Sirius radio? Yeah, I’ll go for that.

    And, of course, lotsa people in their prime car buying age do not feel secure in their employment, can not look forward to a high probability of rising income and, most likely are carrying five figures worth of educational debt.

    • 0 avatar


      I bought, used, a 2013 Acura ILX w/manual trans. It came in one trim: Premium. That brings heated leather seats, sunroof, XM radio, bluetooth, and a backup camera. Of course it has heated side mirrors and climate control, which is pretty much standard anymore.

      No navigation. No high zoot stereo. Just some very plain things.

      As I drive it, I can’t imagine wanting anything more. Bluetooth? Works fine. XM radio? Works fine. Stereo sounds good? Yep. Hey, there’s the USB port, I can plug in my old iPod…and there you go.

      Oh–and navigation? Why, I bring my Garmin over to it, complete with all my 15 years of favorites installed and ready to use. Bought it refurb, $125. It has voice command, even, and a VERY nice screen. Tell me again why I need to pay for a built-in nav system every time I acquire a car.

      Seriously. What does, say, a brand new Lexus LS bring to the table that I would actually WANT besides size?

      My brother drives an Audi S7. I guarantee you, he set whatever personal preferences one time, and he’ll never change them. Get in, turn on radio, drive. Climate control is already set to 72, no need to touch it. Driver’s seat is set, no need to touch it.

      He bought an $85K car simply because he could, not because he’ll touch a single feature inside it.

      Every industry gets to the point where it’s settled in to the needs, and is now stuck with trying to sell the wants. The car industry is no different.

      • 0 avatar

        Yup. My 7 year old CTS, purchased well depreciated, has all gadgets save music bluetooth. I realized today that my MDX is now ten years old. Same as to bluetooth.

        New CTS can have less engine (2.0 turbo four…in a tank ?…nope). The new MDX has a more complicated transmission. These are normal mainstream cars, but the replacements aren’t an upgrade…they are replacements.

        Unless I went for VSport, no need to replace the CTS, and that is because I need 420 hp to sit in traffic…actually the 300 hp from the 3.6 is “adequate” in most cases.

        At this point, if you are handy with a code reader and can do basic DIY, most cars are good for 200k. Maybe a c7 vette is an upgrade from a c6, but an F30 isn’t an upgrade from an E90.

        Car makers have reached Appliance.

        • 0 avatar

          You have an FE3 2nd Gen CTS. Might as well keep that until it is dust.

          Heck, might even be worth mothballing when you are ready for something else.

          • 0 avatar

            I agree keep her till he can’t but ehhhh, OHC GM motor…

          • 0 avatar

            I know… With a 5.3L or 6.0L it would have been about perfect.

            But I still think it’s a nice car and he’s a fancy NY lawyer so he can afford to replace the timing set and throw on some new rings in a few years.

            Plus, like he wrote, what is he going to replace it with? Some start/stop, turbo-4, 9-speed “premium” sedan that was either built for leasing or looks like a mechanical sea monster.

          • 0 avatar

            Oh yes, I’m learning all about “genuine GM parts” (gag, hack, Koff) and beginning to appreciate BMW over-engineering.

            Timing chains in this engine are oil sensitive and I’ve tossed out lots of probably still good synthetic in my auto career…same here. Mob 1 or Amsoil. My engine is also the revision.I go through a quart every 2k, so I can see how if you never checked, and you changed at the oil monitor, you could worst case it easily. My quart every 1500 BMW trained me to check this often…..

            I can’t find a reason to churn $50k for the new stuff..I’d rather buy a Vette. If it pukes I’ll put in a crate engine, still less than the transaction costs of new.

    • 0 avatar

      Exactly. Often new is worse than old. Case in point, now new cars have electronic park brake, even on manual transmission cars. Thanks that I have old handle, I could push start last week when battery drained.

    • 0 avatar

      Agreed. My 2010 Mazda 3 has required all of two repairs in 80,000 miles so far: a replacement for a blown speaker (probably self inflicted) and failed pair of TPMS sensors (went bad after the recommended replacement mileage anyway). Add that up: ~$200 in unplanned maintenance in 7 years and 80,000 miles. Other than that it has just been tires, brakes, oil, and filters. The car has also been paid off for 3 years and gets decent mileage. The Bluetooth works well and the 2nd gens still had good visibility. It’s the hatch with the 2.5 too so I actually have some semblance of power.

      Do I want something new? Yeah, I’ve moved to a point in life where I’d like leather, heated seats, more back seat space, and some extra quiet. On the same token, this car still runs great, gives me zero issues, Looks new perfect cosmetically and cost me next to nothing to drive. I’d be hard pressed to get rid of it just because I’m bored and want more “stuff” in my car.

  • avatar
    thats one fast cat

    Great news for those of us who haven’t lost our heads in the last couple of years.

    Now how long do I have to wait for a Jaguar F-type SVR coupe to drop to $20K?

  • avatar

    I have an 11 year old, 150,000 miles Pilot and I don’t want to trade it in. If the car is still reliable, I like to trade in when there are major advancements in safety such as, from non ABS to ABS, from 2 air bags to 6-8. XM radio and lane departure control don’t excite me. Also, auto braking leaves me dead cold. Technical advancements such as the offering of a diesel engine which in turn increases mileage by 8-10 mpg excites me as well. The rest is all fluff.

    • 0 avatar

      Are you evaluating the mpg number (wrong) or the $ per mile number (correct)?

      If you don’t normalize against the price of diesel vs the price of gas, you’re doing it wrong.

      • 0 avatar

        Well, that was just an example Jalop. It isn’t just the mpg but the feel of the torque as well. Also, prices of diesel are very regional. In Florida where I reside, diesel is between regular and midgrade. Now the drama starts when the urea injection system breaks down. That’s a different story.

    • 0 avatar

      I’m surprised that you don’t regard auto braking as a major advance in safety.

      • 0 avatar
        DC Bruce

        Can’t speak for Carerra, but in my 50+ years of driving I’ve never had a wreck that could have been avoided by “auto braking.” Although I did get rear-ended at low speed in 1977 (while stopped) by a woman who said she had turned around to deal with her fussing infant in the back seat.

        So, maybe that counts, huh? I do note that the forward collision avoidance system in my ’15 pickup (which only disconnects cruise control and sounds an alarm but does not apply brakes) occasionally falses when the corners of the truck are close to something. Would be very annoying, if not dangerous, if it caused the brakes to apply.

  • avatar

    “Capitalism is an economic system that is inherently crisis-prone. It is driven by forces which cause it to be unstable, anarchic and self-destructive.”

    Karl Marx

  • avatar

    I’m waiting for tax season to be over. Dealers jack up the prices, because lots of folks have refund checks in their hands.

    In December, CarGurus showed 25 Prii that met my criteria (2010+, under $14k, under 60k). Now it shows TWO.

    I can wait.

    • 0 avatar

      I think youve misunderstood the data. Prices arent jacked up but rather more people have entered the market so used inventory has a higher turnover this time of year. Someone else is willing to buy your Prius when its discounted to $15k so it never hits your range. This may drive asking prices up but selling prices are completely market driven.

      Aslo if you had that many cars to choose from and youre still looking… Are you really in the market?

      • 0 avatar

        I’m always in the market for the right car at the right price :)

        • 0 avatar
          dash riprock

          With you Egg.

          Started looking for my child’s first car a while ago. Wife laughed at me as it was almost a year before needed. My thought is that the cost of holding a used vehicle (one that was a great deal in terms of price, condition, and, need) is a lot lower than buying one quickly.

          Cash and patience are our friends

    • 0 avatar

      Dealers definitely jack up prices when they think they can. I’ve looked at various cars that show price drops on Cargurus and then price hikes particularly during back to school time in August/September. I’m sure they really do it at tax refund time too.

  • avatar

    I would buy a new car right now, if only I could find one that matches what my current one, a 1996 Volvo 850 wagon, has:

    1) Low center-of-gravity, which makes it fun on Track Days.

    2) Huge cargo area (67.0 cubic feet with rear seat down) for hauling all my stuff.

    3) 3,300 pound towing capacity.

    I went to the Sacramento Auto Show and presented these figures to every manufacturer there. Nobody could match them.

  • avatar

    Maybe I misread the article but it seems contridictory. One the one hand over hyping the plateau in sales – they are still near to record highs. Then on the other hand saying used car prices are falling – which if new cars sales were going down and thereby limiting used car volume in due course (and trade in’s now) should not be happening.

    Bark on another site said that leasing companies are keeping prices high. I would expect supply and demand to force used prices down due to the high new cars sales over the past few years leading to millions of used cars available.

  • avatar

    Used cars are just too good. But I see it as “backlash” against new cars, their complexities, built-in obsolescence, high maintenance, premium unleaded, etc, etc. And policy makers/states/Feds dying to cash-in.

    And there’s never been a better time for used cars. You can refurbish, upgrade, custom-mod a clean/older, low mileage Wrangler for a for 1/2 the money or less, vs new. Do some of the work yourself and score!

    Find a used one for sale, tricked out to your tastes, even better!!

    And you come away with something, in many ways *better*, and done to your likes. And not an immediately depreciating asset, especially if done tastefully.

    Often with just pocket cash, no interest, you “own” own it.

    Same goes for Mustangs, Pickups/mini-trucks, Blazers, Expeditions, Cherokees, Volvos, Corvettes, Miatas (w/V8 mod), 300Zs, MR2s, CRX, Geo Metro convertible (yellow metalic), etc, etc. Resto-mod??

    Best of all, you have something you’re not gonna get bored with quick. And you’d be “sticking it to the man”.

  • avatar

    Don’t speak for everyone, (or even the majority) but the increasing amount of four cylinders in premium/near premium brands has turned me off to a new car purchase. No, turbos don’t compensate for the lack of cylinders and displacement for me.

    My next car will be an Accord Coupe V6, and if Honda does away with the V6 I’ll just save for another couple of years until I can afford a luxury brand that offers one.

    A car with all the gizmos and doodads just doesn’t do it for me if the engine strains like a freshly made eunuch struggling for one last erection.

    • 0 avatar

      “…. if the engine strains like a freshly made eunuch struggling for one last erection.”

      Quote of the week!

    • 0 avatar

      Yeah, V6 is about the smallest I will go in sedans and midsize SUV/CUV, like the Jeep Grand Cherokee.

      But when it comes to pickup trucks, nothing less than a V8 will do.

      No squirrel-motors for me because there simply is no replacement for displacement.

      • 0 avatar

        I hear the same thing at tractor pulls…and yet, a Massey-Ferguson 2775 with a 10.5L Perkins V8 puts out less HP and torque than a JD 6170R with a 6.8L I6.

        • 0 avatar

          ” hear the same thing at tractor pulls…and yet, a Massey-Ferguson 2775 with a 10.5L Perkins V8 puts out less HP and torque than a JD 6170R with a 6.8L I6.”

          Go back to, what–1982? ‘Vette and Camaro V8s had how little horsepower? Do I remember 150?

    • 0 avatar

      I was at the Audi dealer about a month ago getting an oil change. In the showroom, there was a gigantic Q7 with a sticker price of OVER $67k, and it had the 2.0L engine. Absolutely preposterous, not only because of the price of the truck, but because there’s has be no way a motor that small can move something that large with any sort of urgency. So, yeah, I totally agree with you.

  • avatar

    The salvage parts market is very efficient. This allows nearly all non-totaled vehicles to be troubleshot and parts ordered from a computer chair. The market is flooded with youtube clutch DIYs and 300k engine swaps.

    We must reach a point where you just don’t need anymore cars….

  • avatar

    Add to this dealers (and salespeople) who are more incentivized to sell a higher margin used car than a new car, no?

    If I can buy a low mileage 2-3 year old used example of the same new car for 40-50% less than the cost of a new one AND the dealer is happier to sell it to me, there is a pretty big disconnect between that experience and an OEM’s idealized advertising.

  • avatar

    I mention this every time TTAC posts a Sky Is Falling in Subprime article…

    Okay, delinquencies are on the rise, but what are the ACTUAL losses? The reason interest rates are so high on sub-prime loans is to collect additional interest to compensate the lender for the risk of default. So, are lenders losing money or not?

  • avatar

    NO Turbo 4 squirrel motors.
    Audi A7? Caddy CTS.
    You kidding me?

    You see cars every day that get WORSE real world MPG in turbo 4 trim than V-6.

    • 0 avatar
      87 Morgan

      Red apple…I have advised many a person.

      You can have Eco and Boost. Pick one.

      I much prefer my 3.6 liter in the Lacrosse. 300hp of all natural v6. Makes loads of power from beginning to end and gets reasonable mpg figures. I would love 30 or better, but I don’t love the cars that get me there.

  • avatar
    Corey Lewis

    On the flip side, this is an iconic article about the car market!

  • avatar

    I leased a new 2016 GMC Canyon – Loaded up with all the goodies – and found that not only was my insurance absurd (NOTE: I live in Michigan, where car insurance is among the highest in the nation) but the ‘bang for the buck’ wasn’t there. I expected a LOT out of my new car .. a straight steering wheel, a transmission that shifts correctly, a drive train that doesn’t clunk around like my ’82 Chevy C10 I had in high school.. nope. The only ‘remarkable’ technology would be shift on the fly 4WD (not that remarkable), bluetooth (not that remarkable), a computer that tells me to change my oil (not that remarkable), fuel injection (1950’s tech), and heated seats… (who cares).

    My point is.. I’m turning the lease in early, and I bought a car from 1995. It has everything modern cars have .. a nice aftermarket stereo gives me satellite and bluetooth, maintenance is cheap and easy, and if it breaks substantially, I toss it in the garbage and buy another one. I can’t imagine I’ll buy another new car ever again. There’s just no reason to do it. I prefer to buy things that are totally depreciated..

    I understand that my comparison is of a well optioned truck, but I have also driven plenty of new cars, from BMW M’s (they are amazing) to rental Nissan’s (get the job done with no fuss and no thrills). But, for my ‘daily driver’ duties I’m sticking with used cars forever.

  • avatar

    What I want to know is who pays for all the leased vehicle turn-ins that are worth well under the contracted residual level? If used vehicle values tank that sea of leased vehicles is going to cost some manufacturers/banks some serious money – can they afford the losses?

  • avatar

    I like new cars. They are better than old cars. This website has a pretty good sized contingent of cheap people who place lowest possible cost as their main mission. A fair amount of Luddites too.

    As for me Just got a 2017 Accord Hybrid Base. List 30.5, paid 25.7.

    Nice ride. Quiet, smooth. I can see out out of it. 212 HP and 228 lb-ft of torque give decent throttle response. NOt too soft a ride, but plenty comfy.

    Averaging 46mpg so far. Pretty damn good for a car thats 73 inches wide and 194 inches long. Plenty of space for adults in front and rear seats.

    New tech driver assist features have mixed utility, but I am glad to have them. Might save me a lot of money and maybe my life, who knows.

    Lot nicer than my 2011 Accord. In fact, I realize I waited too long to get a new ride, so I leased this time.. I’ll be looking to go new again in 3 years.

    Somebody has to do it.

    • 0 avatar

      That combination of power and MPG is mighty impressive. Sounds like Honda finally figured out how hybridize effectively. How’s the throttle response when you need a quick shot of power?

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • Inside Looking Out: Doesn’t Tovares afraid of being cancelled from STellantis for making such outrages...
  • conundrum: Well, the math the EU bureaucracy came up with to prove EVs were so wonderful over a decade ago was a load...
  • DAC17: Why does anyone care about this ridiculous way to strip money out of peoples’ pockets for unnecessary...
  • Inside Looking Out: Did you mean President Yeltsin?
  • Tele Vision: I recently bought a 2003 4Runner with the 4.0L V6. That engine makes more horsepower than the...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Adam Tonge
  • Bozi Tatarevic
  • Corey Lewis
  • Jo Borras
  • Mark Baruth
  • Ronnie Schreiber