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.
We've written frequently about the pending collapse in used car prices that will inevitably be brought on by a surge in leases over the past 5 years. With wages stagnant and car prices rising, the only way Americans could 'afford' those brand new BMWs and Mercedes was to lease them.
We've spent a lot of time of late writing about the pending collapse of the U.S.
We've written frequently in recent months about the coming subprime auto crisis which will very likely be prompted by a wave of off-lease vehicles that will flood the market with used inventory over the coming years. In fact, Morgan Stanley recently predicted that the surge in used inventory could result in as much as a 50% crash in used car prices over the next couple of years which would, in turn, put further pressure on the new car market which has already resorted to record incentive spending to maintain volumes.
Here are just a couple of our most recent notes on the topic:
For the first time since January 2009, sales of cars declined year-over-year in all three of the world's largest auto markets of Western Europe (-6.8%), China (-1.8%) and the United States (-3.7%). Combined, these three markets account for roughly 70% of the world's auto sales (chart per Bloomberg).