U.S. Car Market Weakening But Still Close To Highs.
Ticking Leasing Time Bomb Worries Analysts.
The U.S. car market continues to perform close to records, but sales are expected to decline a bit as discounting accelerates, and worries about leasing mount, with one investment banker warning about the possibility of a big shock to the system from plummeting second hand prices.
According to investment researcher Morningstar of Chicago, U.S. car sales will slip 2.5 per cent in 2017 to between 17 to 17.2 million.
“Key factors inhibiting growth include leasing, which represented approximately 30 per cent of 2016 new vehicle sales, and the possibility that the supply of off-lease vehicles may increase to 5 million by 2019 from about 3.1 million in 2016,” Morningstar said in a report.
Investment bank Morgan Stanley talks about how in the short term, even a weakening market allows fat profits for the car makers because of the plethora of SUV and pick-up truck buyers.
But it also warns that there is potential time-bomb ahead in the shape of the huge second hand vehicle market, leasing, and the likelihood that recent developments in technology which add amazingly effective and low cost safety enhancements might suddenly devalue the auto stock.
“The penetration of semi-autonomous features such as Automatic Emergency Braking can progress 4 times as fast, with 4 times the safety impact at one quarter the price of an airbag system. While the impact on the value of the 255 million used cars on the road in the U.S. cannot be determined with high precision, we believe it is not too early to prepare for the potential consequences,” Morgan Stanley said in a report.
It said in a traditional cyclical downturn prices used car prices can fall up to 20 per cent. With the ubiquitous new technology coming on to the market a 50 per cent fall is plausible.