Used-Car Inventories Surge To Record Highs As Goldman Fears "Spillovers From Demand Plateau"
By Tyler Durden
Just 24 hours ago
With only sports cars and pickups rising in price in the last 15 months…
and with inventories so extremely high… In New Cars…
And Used Cars… (via WSJ)
Inventories of used cars in good condition are soaring in the U.S., and finance companies and dealers are scrambling to offer leases as a way to make payments affordable for people who don’t qualify for cheap deals on new cars or those looking to save cash.
Wholesale pricing fell during each of those months verus 2015, Manheim Consulting data shows. Manheim estimates used-vehicle supply will hit records in during a three-year period starting in 2016.
Lower used-car prices will eventually dent new-car pricing power, analysts said.
Production slowdowns are inevitable… And as Goldman explains, weakness in auto sales and production could be an unwelcome headache for the manufacturing sector.
We interpret the recent pullback in auto sales as a sign that demand has finally plateaued. Business spending on vehicles has been robust, but pent-up demand from the recession now looks exhausted. Consumer spending on cars and trucks has been flat for two years, despite favorable income trends and access to credit. Auto sales are currently above our estimate of trend demand, and we see the risks to sales as skewed to the downside.
Sales of light vehicles declined to a seasonally adjusted annualized rate (saar) of 16.5 million units last month, in contrast to consensus expectations for a roughly steady result of 17.5m. The downside surprise of one million units was the largest since 2008, and raises questions about whether the robust trend in vehicle sales is finally cooling off. Seasonal factors may have played a role: using an alternative (but standard) seasonal adjustment technique makes the recent decline look less dramatic, and we find some evidence that an early Easter can depress sales activity in March (Exhibit 1). But beyond these technicalities, we would read the latest data as suggesting that auto demand has now plateaued.
In earlier analysis, we argued that US vehicle sales would likely normalize at 14-15m units per year, based on demographic changes and other secular trends (see shaded area in Exhibit 1). However, sales can run above this level for some time—as they have in recent years—as consumers and firms exhaust pent-up demand from the recession. We think this process is now running its course, and the medium-term risks to auto sales are therefore skewed to the downside.
Household spending on new motor vehicles has already flattened out, despite solid fundamentals…
Weakness in auto sales and production could be an unwelcome headache for the manufacturing sector. Growth in auto output has accounted for 40% of the increase in manufacturing production since January 2012, …read more
Source: Used-Car Inventories Surge To Record Highs As Goldman Fears "Spillovers From Demand Plateau"
