Record High Lease Returns Set To Wreak Havoc On Used Car Prices

Discussion in 'In the News' started by ALS, Dec 10, 2016.

  1. ALS

    ALS Super Moderator Staff Member

    Get ready for some great used vehicle buys in 2017 and 2018.


    About a month ago we warned that declining used car prices could spell disaster for subprime auto securitizations (see "Slumping Used Car Prices Spell Disaster For Subprime Auto Securitizations"). While it's always difficult to predict the exact timing of when bubbles will burst, a combination of record-high lease returns in 2017 and 2018, combined with rising interest rates could imply that the auto bubble is on the precipice.

    As Bloomberg recently pointed out, strong used car pricing is a critical component required to prop up the overall auto market. While American's love their brand new cars, if used car prices become too soft then substitution can hurt new car sales. Add to that the impact of falling residual values on the finance arms of the auto OEMs and you have all the ingredients required for an auto market meltdown.

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  2. Blackbelt

    Blackbelt Well-Known Member

    We are seeing some of this now with the prices of the Nissan Leaf on the used market. I leased my Jeep Compass because it was a cheap way to get an AWD vehicle. If FCA is willing to take the depreciation hit, then i have no problem with that. My truck had a residual of $28K after 2 years. I was told that they were going across the auction block for 20-21K.
    With the right timing and the right vehicle, there will be some tremendous bargains coming in the used market. We are already seeing some of that now, it will probably spread as time goes on.
    But hey, keep on cranking out those 40-60K trucks and SUV's that no one can really afford, it won't come back to bite you later.......right?
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  3. brick

    brick Answers to "that guy."

    Yeah, this doesn't seem like a problem for me. I'll never pretend that leasing is cost effective but my current lease was structured pretty well...high residual, good money factor, maintenance + wear & tear thrown into the seasonal deal I got, so overall a very reasonable cash outlay for three years' worth of worry-free near-lux transportation with a brand new high-FE engine that I wouldn't have risked a purchase on in the first place. (Any questions on lease return rates? Keeping mine would be idiotic...I'd likely be able to buy a year newer for the same price as the buyout on my '15.5.) I have my sights squarely on the used market for a purchase in '17 anyway so the lower things go the better off I am.
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  4. Mendel Leisk

    Mendel Leisk 2010 Prius (CAN Touring) Staff Member

    John Oliver's send up.

  5. ALS

    ALS Super Moderator Staff Member

    I saw on Off Lease only they had 2015 Volts going for 13K-14K.

    Damn that is cheap.:)
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  6. xcel

    xcel PZEV, there's nothing like it :) Staff Member

    Hi Mendel:

    I loved that skit by Oliver!

    New cars are being given away as well. I was speaking with a Group of Auto Research Analysts just a few weeks ago and the local FCA dealership down from their offices was giving away brand new 2015 Fiat 500e's away for $50/month and no money down.

    I do not know where this is going but you cannot teach the the lowest income individuals personal finance. As an example, a friend of mine quit his job w/ benefits a week ago to go Uber full time. Instead of waiting until January 1st and collecting 2 weeks of paid vacation, he thought WTF, today is a good day to throw $2k of paid vacation into the middle of the road and light it on fire. All his cars with over 200k on their clocks are under water too. :(

    Regarding sub-prime auto loans, the predatory lending, lenders, and the Wall Street $s where the real $s come from pisses me off!!!

    In the meantime, a California Hyundai is offering new 17 Elantra SEs for $13,999 if you are a Hyundai owner or $14,499 if you are not. Hyundai and Kia are probably the only two OEMs that can make money at these kind of car sales. If the auto market cools off in 2017, watch OEM stock prices tank from their recent run ups.

    It should be a very interesting 2017 and 2018 watching auto sales and the auto business as a whole.

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  7. Mendel Leisk

    Mendel Leisk 2010 Prius (CAN Touring) Staff Member

    I've had friends and (sadly) family saying with interest rates so low it's the "smart thing" to take out a loan. A debt is still a debt though: a monthly millstone, monopolizing your budget.

    All these furniture and appliance ads too: no money down, no payments till...

    They prey on the gullible.
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