Used Car Prices Expected To Drop In Next Few Years
Analysts warn of largest decline in second-hand vehicle prices in U.S. history
Morgan Stanley auto analyst Adam Jonas told Business Insider that "...we take seriously the growing signs of dealer concerns over the sustainability of practices meant to lower the monthly payment and the risk that we are taking consumers out of the normal trade cycle, pulling forward demand from the future."
Translation: longer-term loans with lower monthly payments and automaker incentives are luring used car buyers into new car show rooms. Leasing has also become more attractive -- 26 percent of vehicles are leased these days, up from 18 percent in 2008. And all of those new -- soon-to-be used -- cars have to go somewhere. Used cars could end up piling up on dealer lots in the next few years, driving the supply up and prices down. Jonas warns this could lead to the largest decline in second-hand vehicle prices in U.S. history.
While that seems to be a boon for the consumer, the lending practices leading to this rise in new car buying have some in the industry worried. In an effort to find more customers, there has been much more subprime lending, which now amounts to about $46.2 billion, an eight-year high, according to a recent study by Equifax. These subprime loans account for about 12 percent of all auto loans, according to The Detroit News.
"It could be a disaster later on," Jonas told The Detroit News. "We're clearly robbing Peter to pay Paul."
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