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U.S. used-car values “could drop by 50%”

Used-car values in the U.S. could drop by 25% to 50% in the next four to five years, warns a new report by Morgan Stanley. 
 
Titled 'Anatomy of a Used-Car Downturn', the report lists the growing supply of off-lease cars and the growing volume of subprime credit car financing as some of the causes for concern. 
 
New-car inventory in the U.S. was up 10% and trending higher at the end of last year. OEMs have upped capacity to 20 million, but the market is expected to be closer to 17 million – which means that both manufacturers and dealers will have to cut prices to sell stock. 
 
Cited by Automotive Fleet, the report warns that “as new-car prices fall, used prices look relatively more expensive, which necessitates a decline in used prices to equilibrate the supply/demand imbalance”. 
 
A crisis could be sparked if high interest rates combine with large volumes of negative-equity trade-ins. This would critically restrict the credit available to used-car buyers.
 
Another, underreported factor exerting downward pressure on used-car prices is the increasing sophistication of safety technology in vehicles. Semi-autonomous and autonomous systems designed to avoid collisions and lane departures are increasingly relevant, seeing that U.S. traffic deaths have increased by 20% over the past two years – after years of steady decline. Distracted drivers are cited as the cause for the increase.
 
The Morgan Stanley report expects OEMs to achieve “nearly 100% active safety penetration by 2020”. This would create a giant safety gap between new and used vehicles, increasing insurance premiums on older models and accelerating their obsolescence.
 
Image: public domain
13/04/2017  |  Frank Jacobs

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