Deflation Is Coming To The Auto Industry As Used Car Prices Drop, Off-Lease Deluge Looms
By Tyler Durden
Last week, we learned that vehicle leasing as a percentage of monthly light-vehicle sales hit a record in February at 32.3%.
In other words, a third of the over 1 million cars and light trucks “sold” during the month were leases, according to J.D. Power.
This is indicative of what is now a long-term trend. Have a look at the following chart from WSJ, which shows that since 2009, the share of monthly auto leases as a percentage of vehicle sales well more than tripled:
Of course the thing about leased vehicles is that they come back, and as
“All else equal, it puts pressure on lease residuals – though we note most fincos had assumed declining used vehicle prices in their lease writing,” Goldman said, earlier today. “Second, while improving inventory acquisition cost for the dealers, it may put downward pressure on the value of existing dealer inventories, which can be negative for used margins.”
Well yes, declining used vehicle prices “may” be a “negative for used margins” – in fact that’s almost a tautology.
And of course falling used car prices means pressure on new car prices as well, which would be a shock considering
Obviously, the scariest part about all of the above is that consumers still have the pedal to the metal (pun fully intended) when it comes to leases, which means there’s no end in sight to the off-leases and thus no way to determine, at this juncture, how big the residual writedown wave and deflationary auto industry calamity will ultimately end up being.
So, you know… “buckle up.”
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Bonus chart: largest used car price decline for any February since 2008
Source: Deflation Is Coming To The Auto Industry As Used Car Prices Drop, Off-Lease Deluge Looms
