Car Prices Face Biggest Drop On Record As Auto Market Apocalypse Begins

A car market crash of epic proportions is already in motion, according to new data released by Manheim Market Insights and Cox Automotive. In June, car prices faced a record drop, marking the end of two years of hefty increases. Used vehicles saw the biggest monthly declines since the pandemic boom, while new cars are about to plummet in value due to an oversupply crisis that is shaking the US auto market. Still, higher interest rates are making monthly car payments far more expensive than they were just a year ago, and many Americans who bought a vehicle in the past couple of years, and are now seeing its cost fall off a cliff, are already underwater on their loans, which indicates that a wave of financial turmoil is right ahead.  Continued below the video

From May to June, wholesale used vehicle prices declined by a record 4.2 percent, according to Manheim Market Insights. More notably, the Manheim Used Vehicle Value Index, a closely watched measure of prices, plunged 10.3 percent year-over-year in June. Compared to one year ago, prices for pickups and vans went down by 6.6 percent and 8.5 percent, respectively. Sports cars were the worst off, falling 14.8 percent in prices compared to last year, while compact cars and midsize cars each dropped by more than 12 percent from June 2022. Looking ahead, the three strongest predictors of used car prices – new vehicle inventories, new vehicle incentives, and the new-versus-used price differential – all point to a significant crash, the firm notes. In fact, Goldman Sachs analysts lowered their user car inflation forecast by 4 percent to -11 percent, which means that the bank is assuming that used car prices are going to face a 14 percent downside from current levels by the end of the third quarter.   Continued below the ad

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That would result in an almost 25 percent crash in a span of just six months, and an oversupply crisis in the new car market could bring the price of used cars even lower before the end of the year. Right now, the market for new cars is in a strange state. UBS analysts argue that a price war is on the horizon with dealers duking it out by dropping new car prices. In May, new-vehicle inventory reached its highest level in two years, with a notable increase from the previous month. Charlie Chesbrough, Cox Automotive’s senior economist. says that the new car market will continue to see weakening demand due to worsening economic indicators, and the increase in supply will force many dealerships and automakers to start offering discounts.

Economic Data ‘Flat Out Bad’: The Outlook For Financials, Industrials & Retail Whether it’s retail sales, used car values or ag equipment inventory, economic data impacting these sectors is bad and getting worse. “What’s wild is we haven’t seen the period yet where tough comps come into play. A slight negative Redbook number is flat out bad for retail any way you cut it.”  Hedgeeye

At the same time, the share of new auto loans with monthly payments exceeding $1,000 has hit a new record as borrowing costs continue to rise. Consumers are taking on too much auto debt, which could have catastrophic consequences during the recession. The latest number available on the average negative equity value of auto trade-ins was $5,341 in Q4 2022, a 29 percent jump from the previous year. The number of vehicle sales that involved a trade-in with negative equity also climbed by 17 percent over the same period. The negative equity trend could accelerate even further as vehicle prices continue to drop. In other words, conditions for borrowers will become even tougher before the market stabilizes. Car prices still have a lot of room to fall, and during that process, countless Americans may find themselves buried in negative equity.

Comments – Threads – Links (all sides)

• USED CAR PRICES IN A FREEFALL  Wholesale prices saw their largest-ever June decline  -In *1 month* wholesale used car prices dropped a whopping 4.2% –used car prices have dropped over 10% vs 6/2022 -Sports car prices have taken the worst hit, -14.8% YoY Source: Cox – Car Sales guy
• EV SALES NOT MATCHING OUTPUT: As the auto industry produces more electric vehicles, sales are not keeping pace, according to a report. MORE Newsmax
• The Japanese auto industry is close to tanking their economy ,Toyota’s debt ~217 bill$ and sales down 20%,Nissan debt haa been classed as junk look at the expansion of debt since 2019 – Laughing Cav
• Here are the latest updates on new car sales in the US – Bloomberg
• The combination of a huge drop in wholesale prices and a slowdown in sales means consumers looking to land an affordable deal on a car or truck may find them on used car lots, if they hurry. – Forbes
• I don’t see the doomer angle. New cars are now more available- isn’t “supply chain issues” why used prices went up in the first place? New car sales in June were higher than any June since 2019. EVs have crazy tax credits for buyers. People are googling “best new car” DVI

Get back to that pre-COVID feeling.