The U.S. auto market is at an interesting crossroads with used car prices crashing to new lows every month while new car prices continue to defy gravity courtesy of a somewhat ‘frothy’, if not suicidal, lending market that has seemingly decided that anyone with a pulse is financially qualified for a $0 down, 0% interest, 80 month loan on a brand new $40,000 luxury vehicle of their choice.
As the Labor Department’s consumer-price index data showed last Friday, used car prices once again dropped in July to the lowest level since the ‘great recession’ of 2009. In fact, since the end of 2015, the cost of used vehicles has dropped in all but three months and are now roughly 10% off their 2013 high.
Unfortunately, the outlook for the used market is only expected to get worse with the volume of lease returns expected to soar to nearly 4mm units by 2018.
Meanwhile, despite modest weakness over the past two months, new car prices have held up fairly well…
…even as the domestic auto OEM’s continue to flood dealer lots with new inventory that isn’t moving.
Of course, logic would dictate that some level of substitution would have to take over at some point as the financial benefits of buying a used car eventually outweigh the social indignity of cruising around town in a 3-year old clunker.
That said, those innovative “Low Credit Score” discounts do make new car buying very attractive…