Peak Preowned: Used Car Inventory Hits Record Level; Congratulations, You Are Qualified

Auto manufacturers finally stuffed every dealer’s lot full of cars just as a glut of used cars hit record levels.

by Mish

In an effort to dump the high and rising number of cars, dealers are slashing prices.

Want a car? If so you are qualified. But who doesn’t have a car that needs one?

The Wall Street Journal reports Hot on the Lot: Leasing a Used Car.

The article subtitle, “As inventories of preowned vehicles rise, dealers look to buyers who don’t qualify” seems to make sense.

However, dealers make sure everyone is qualified for something.

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.
New-car sales gained steam in recent years, creating a glut of used vehicles. Those inventories are problematic for auto makers hoping to maintain a record sales pace on fresh sheet metal and remain profitable in the process.
Lower used-car prices will eventually dent new-car pricing power, analysts said.
Sales managers historically avoided used leases because they were difficult to calculate, but greater access to auction results and real-time sales data is changing dealers’ attitudes.
More lenders also are getting in the game. Ally Financial Inc., one of the nation’s largest lenders and a former subsidiary of General Motors Co., started offering used leases in March.
The typical used-car lessee has a 635 credit score, 80 points lower than a new-car buyer, according to Experian PLC, which produces credit reports. While only 3.8% of vehicle leases written in the fourth quarter of 2016 were on used vehicles, that number is up a half percentage point compared with the second quarter of 2015. [Mish note: I believe the Journal means fourth quarter of 2015]
More than 16% of vehicles purchased—new and used—in the final three months of 2015 were leased, compared with 11.5% in the same period in 2012. Used-vehicle supply was extremely thin four years ago following a sales drought during the financial crisis.
The bet on leasing could turn sour if used vehicle prices take a dramatic turn. But, lenders like Ally, say they are prepared to handle the downside especially because used cars don’t depreciate as fast new ones. For customers, it is a no-lose situation, said Mr. Harrington. “Here’s the beauty of a lease: It’s not your car.”

Wholesale Automotive Sales

In the durable goods category, wholesale sales were an absolute disaster led by autos.

The auto sector finally appears to have rolled over.

Mike “Mish” Shedlock

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