Why used cars are about to get cheaper

From Stansberry Newswire:

ABC News has a report out this morning focusing on used car pricing. The article highlights how all of the “sweetened” leasing deals car companies did in the last few years to try and drive sales are coming back to haunt them in terms of increasing used car supply. This increase in supply is only going to get worse putting downward pressure on prices. This is not going to help new car sales as you can get a better deal on a slightly used, aka new to me, car.

In the mean time, car sales have dropped from half of all sales to 38% of the market currently. According to NADA Guides Index, used car pricing fell 7% in March.

Why do I feel like I’ve heard all of this somewhere before? (see our last post on this idea¬†here)

The last three years saw car sales hit record levels. Leasing was a big driver. A number of these leases were done to subprime lenders. The car companies used numerous tactics including extending the life of loans to get people into cars they could not afford. At some point, some of these borrowers are simply going to walk away from underwater loans on cars they can’t pay off.

I would keep an eye on the usual suspects – Ford (F), General Motors (GM), Fiat Chrysler (FCAU), Avis Budget (CAR), Hertz Global (HTZ), Ally Financial (ALLY), Santander Consumer (SC), Capital One (COF), Carmax (KMX), AutoNation (AN), American Axle (AXL), Magna International (MGA), and Dana Corp (DAN) to name a few.

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