By on April 21, 2020

2017 ford fusion, Image: Ford Motor Co.

At this point, only two things in our present reality bear any similarity to what took place in the Great Before: average new car transaction prices are shooting for the Van Allen Belt, and pickups sell like hotcakes. The relationship between 1 and 2 can’t be downplayed.

Everything else has been turned upside down by the coronavirus pandemic and the resulting plunge in sales spurred by both fear and state lockdown measures. Domestic market share is up, zero-interest loans are proliferating, and used vehicle prices are falling through the floor.

That latter issue could spell big losses for manufacturers whose main business is selling new vehicles.

The industry-standard measure of used vehicle prices, the Manheim Used Vehicle Value Index, fell 11.8 percent in the first half of April — a drop roughly equivalent of what we saw during the Great Recession of 2008-2009. If the index holds firm at that figure for the month, it could set a record, Bloomberg notes.

It’s a drop that caught even analysts at JPMorgan Chase & Co. off-guard.

“The real losers of the development are likely the captive-finance subsidiaries of automakers like GM and Ford, and the rental-car companies,” wrote head analyst Ryan Brinkman in a Monday investor’s note, adding that GM’s captive finance arm could lose $3 billion if used car prices sink 10 percent for the second quarter of 2020. Ford Credit could lose nearly that amount, $2.8 billion, Brinkman wrote.

The reason for the plunge is simple. Weak demand, with fewer auctions ongoing. Besides that, dealers and rental agencies are expected to fling used vehicles at those auctions once they restart in the hopes of making a quick buck. Rental agencies like Hertz have seen their shares plummet amid the viral mayhem.

All of this is the exact opposite of what we saw over the past few years, when used-car prices climbed rapidly amid a surge in well-optioned pickup and SUV sales that muscled buyers into the used field with their sky-high ATPs. Lease offers for more conventional rolling stock were often unattractive due to the expected depreciation. This generated greater demand for used vehicles, but buyers had to compete for very in-demand off-lease fare boasting greater standard safety and convenience features and a greater mix of trucks and SUVs to sedans than ever before. The Manheim index rose steeply over 2017, 2018, and 2019.

“We’re a bit in wait-and-see mode, and we think we’ll have a much clearer sense of used-car prices once shelter-in-place orders are lifted and auction activities can resume more normal levels,” Jennifer Laclair, chief financial officer at Ally Financial, told Bloomberg. The firm had forecast a 5-to-7-percent drop in used vehicle prices.

One thing automakers like Ford and GM are doing to push back against the potential losses is by helping keep existing vehicles in the hands of lessees, Laclair said. Lease extensions offered since the outset of the United States’ shelter-in-place era should help stem the flow of used vehicles into auctions a bit, but it’s not a cure-all.

J.D. Power data shows 1.8 million Americans will see their leases run out between March and July of this year. “OEMs may realize losses on off-lease vehicles” if used-vehicle prices fall, the firm wrote on March 25th.

[Image: Ford]

Get the latest TTAC e-Newsletter!

Recommended

32 Comments on “Used Car Prices Take a Dive, Spelling More Worry for Anxious OEMs...”


  • avatar

    It still has farther to fall to get back to the historical average pre 2008. And a lot further to fall to hit the bottom from 2008. Used car prices have been damn high for a while. Lots of things get blamed but I assume it’s really a combination of a lot of things. Cash for Clunkers, Higher lease rates, OEM’s actually caring about resale and working with auctions to max it out, More middle income families priced out of average new cars (moving target), cars lasting longer, creative lending practices.

    In the end thou it means for a lower income cash buyer (or any buyer) it kind of stinks.

    • 0 avatar
      CKNSLS Sierra SLT

      The “cash for clunkers” ended in July of 2009. The vast majority of those cars were one step away from the junk yard and would have been off the road years ago anyway-buy back or not.

      Yea-I know there were a few isolated incidents of low miles exotic vehicles traded in under the program.

      The cash for clunkers program has no bearing on what’s happening today with used car prices.

      It’s the “Internet Myth” that refuses to die.

      • 0 avatar
        Hummer

        Incorrect, there were a lot of good GMT400s lost, likely half of those would still be on the road today had it not been for their untimely demise.

      • 0 avatar
        cprescott

        You can spin Cash for Clunkers as you have done, but the fact is that it did remove lower level of serviceable products that could have been bought by lower income people (assuming they would do so). CFC did remove many decent vehicles from the used car market and that is a fact. It is not an internet fake news story. You don’t get to own your own set of facts.

        Yes, many vehicles were removed that were at end of life, but far too many were runners that had their engines destroyed that could have had further use by someone else.

        With what I said above, I’ll concede NOW that the CFC program had no impact on used car prices today. It did for upwards of five years afterwards, however.

        • 0 avatar
          CKNSLS Sierra SLT

          cprescott
          Please reread my post. You and I agree that cash for clunkers has no bearing on the used car market TODAY. That’s the myth that refuses to die.

    • 0 avatar

      I don’t think cash for clunkers had a huge effect but you took tens of thousands of vehicles off the road, at a time when the economy was in shambles, pretty sure it had at least some minor effect. I know locally I was shocked that most of the trade in’s were worth really close to what the rebate was. Lot’s of Trucks and SUV’s.

      It had ripple effects that went up the price scale. Looking at the data it almost certainly caused a spike in used car prices for a couple years afterward.

  • avatar
    Lie2me

    Ooh, don’t tell me this I’m hot to buy a slightly used car and I don’t need any more incentive

  • avatar
    Hummer

    After driving a previous gen 4Runner with the Lexus V8 I’m half tempted to trade my ‘16 in on a used V8 4Runner. Huge difference I don’t care what the numbers say.

  • avatar
    R Henry

    I have been watching prices for Chrysler 300s on the Hertz “buy” website. Cars that were $22k a month ago are now $20k.

  • avatar
    R Henry

    I have been watching prices for Chrysler 300s on the Hertz “buy” website. Cars that were $22k a month ago are now $20k.

  • avatar
    kcflyer

    Hummer,

    Why not just buy a GX 460? Gets you the 4.6 V8 with a little more lux than the new 4runner for not a lot more money. We just traded or Enclave last week for a leftover 2019 GX. Dealer was pretty motivated from what I could see. Very happy with the deal. Wasn’t planning on doing this for another year but the price was just too tempting and the interest rate was icing on the cake. Also the 4runner wont let you get a third row and the KDSS. The GX gives you both.

    • 0 avatar
      Hummer

      My ‘16 4Runner has the 3rd row, I’ve needed it once, not a big deal to me. I’ve never used KDSS, so I can’t miss something I’ve never had.

      But most importantly I’m not big on the GX design, the tall, narrow, tippy look just doesn’t do it for me, it looks more bling than off-road and that puts it at a disadvantage to me. Putting decent sized tires on it for beach duty will already jack up the 4Runner more than enough, the taller profile of the GX would have me worried.

      Don’t get my wrong, I respect the GX but it’s just not what I’m after. On top of that the current GX looks like it has a plow on the front end, buying a new vehicle then immediately needing to purchase an aftermarket bumper so it doesn’t get dragged off doesn’t speak well of the vehicle to me.

      • 0 avatar
        jkross22

        Plus the GX is a pretty old vehicle. Old tech and design. If you want a large Lexus SUV, seems to me the way to go would be to buy the last of the good looking ones…. the LX models from around 2004-07.

    • 0 avatar
      ajla

      I think the biggest appeal of the GX460 is you get the 4.6L UR V8 instead of the 4.7L UZ V8 used in the 4Runner.
      The UR is smoother, more powerful, and requires less maintenance.

      • 0 avatar
        Hummer

        The 4Runner V8 is smooth enough to balance a marker on top of the engine, it’s output isn’t anything special in 2020 but it feels stronger than the numbers suggest, specifically for its weight. As far as maintenance??? I’ve looked into the engine only a little but I haven’t seen any issues with it.

  • avatar
    NormSV650

    “Consumer Reports has dropped the Honda Odyssey from recommended status following its annual reliability survey, one of 12 models that didn’t make the cut this year….What was the issue with the Odyssey? According to Consumer Reports, the minivan “had much-worse-than-average reliability,” with problems including the infotainment display freezing and losing all functionality, and power sliding doors that wouldn’t close.

    The automaker told CR it had released over-the-air software updates which can be downloaded by the customer using any Wifi connection. As for the door problem, Honda plans to issue a service bulletin with specific dealer repair guidance soon.”

    https://www.al.com/business/2018/10/consumer-reports-drops-honda-odyssey-from-recommendation-over-reliability-issues.html

    • 0 avatar
      cprescott

      Just remember that Honduh had a class action lawsuit over its odometers that would get you out of the warranty mileage period quicker than had it read mileage accurately. This is also the same company that figured its buyers wouldn’t notice decontented Civics in a redesign only to have to rush an update for the next model year to restore what it had taken out. And then the oil thinning situation which it has not addressed completely with the 1.5 engine.

      Right now Honduh cannot be trusted. It has lost its way after about 2000.

  • avatar
    SCE to AUX

    The focus on used car prices in the headline is a bit distracting.

    The real story is that all vehicles – new or used – are experiencing price declines due to weak demand. Job losses and stay-home orders have killed the market.

  • avatar
    jkross22

    I’d bet we won’t see any meaningful drop in used car prices for another few months from dealers. Individual sellers are a different story.

    • 0 avatar

      So the wholesale side is a mess. Very few sales and those are only low bidders with cash reserves(think single digits cars sold over 100’s passing a block) . This week I started seeing some new listings with much lower prices that I assume are coming from this. But little change in inventory dealers had before this. I assume they are trying to wait it out, figuring if it’s a month maybe two they can hold floodplan (and/or overhead) and be OK. But those few low priced cars are going to start forcing the market down pretty quick.

  • avatar
    gasser

    Big problems looming for manufacturers with captive finance arms. As the default rate rises on marginal auto loans, the ability of the finance arm to package and resell these ABS auto loan pools falls precipitously. Thus comes the end of financing purchases with less than stellar credit…No more new vehicles for people with FICO scores in the 500s or low 600s.

  • avatar
    Jeff S

    Cash for Clunkers has been over for more than 10 years and even then many of the vehicles were high mileage and on their last legs. Many of those vehicles had little value and because of that many owners would have held onto them anyway. Trade in value on most older cars is not much and for many it makes more sense to hold on to the old car especially if they have children that are either driving age or close to driving age. Also cars last longer and it is not unusual to get 15 or more years out of a car. Car dealers have large markups on most used vehicles much much more than you pay if you are buying from an individual. Cash for Clunkers was used as an excuse by car dealers to markup used car prices–most of the used vehicles dealers sell would not have been candidates for Cash for Clunkers.

  • avatar
    Art Vandelay

    Good to know on the lease bit…mine is up July 2nd. As I intend to buy it however, I wonder if I can leverage that in any way? I was led to believe that there wasn’t any negotiation at the end of a lease if you wanted to buy but hadn’t really looked into it yet.

Read all comments

Back to TopLeave a Reply

You must be logged in to post a comment.

Recent Comments

  • raph: Ian Callum! The man who is responsible for the “ubiquitous modern coupe shape”! If it weren’t...
  • raph: Or GM metal brake lines for that matter. How GM has avoided a recall on older pick-ups with disintegrating...
  • slap: We had a 1998 Camry CE with 5speed manual that we donated last year. We bought it new, and it was somewhat...
  • raph: Despite what you see on the news most people are smart and not far enough on the sociopathy spectrum to realize...
  • raph: It’s all about the revenue stream and not the enforcement. Besides the real killer is the effect on...

New Car Research

Get a Free Dealer Quote

Who We Are

  • Matthew Guy
  • Timothy Cain
  • Adam Tonge
  • Bozi Tatarevic
  • Chris Tonn
  • Corey Lewis
  • Mark Baruth
  • Ronnie Schreiber