Morgan Stanley: Used Car Prices May Crash 50%

Jon Alternative Media, Banking, Blogosphere

For months we’ve been talking about the massive lending bubble propping up the U. S. auto market. Now, noting many of the same concerns that we’ve highlighted repeatedly, Morgan Stanley’s auto team, led by Adam Jonas, has just issued a report detailing why they think used car prices could crash by up to 50% over the next 4-5 years.
Here’s the summary (flood of supply, poor lending standards and desperate OEMs who need to keep new car sales elevated at all costs):
Off-lease supply: This has already more than doubled since 2012 and is set to rise another 25% over the next 2 years. Extended credit terms: Auto loans are at record lengths and lease assumptions (residuals, money factor) are at record levels of accommodation. Rising rates: Starting from record low levels in auto loans. Overdependency on auto ABS: The outstanding balance of auto securitizations has surpassed last cycle’s peak. Record high deep subprime participation: 32% of subprime auto ABS deals were deep subprime (weighted average FICO < 550) in 2016 vs. 5% in 2010. Record high units of new car inventory: 2016YE unit inventory levels were near 10% higher than 2015YE, and are continuing to trend higher in 2017.

This post was published at Zero Hedge on Mar 31, 2017.