2017 and 2018 might be good years for used car buyers

Miss D. and myself are frugal vehicle owners.  We buy used vehicles, paying cash whenever possible, so as not to go further into debt.  Both our vehicles are fully paid for, and are providing reliable service.  When they begin to be unreliable due to increasing age and/or mileage, we'll replace them with something similar.

It looks like 2017 and 2018 may be very good years for people with that attitude.  Bloomberg reported late last year:

Thanks in part to low interest rates, leasing has become an increasingly popular way to drive away a new car ... Typically a lease lasts about three years, after which the customer returns to the showroom for another vehicle -- which is when things could get difficult for the industry.

"There's going to be a lot of units coming back over the next several years," Ford Motor Co. warned last month. "They're going to get to levels that we have never seen on an absolute basis in the industry before".

In 2017, about one million more off-lease vehicles will be available in the U.S. compared with 2015. That additional volume will put downward pressure on used car prices.

If cars depreciate too quickly, consumers will be unwilling to pay high prices for new vehicles. High residual values also help to keep monthly lease payments low. In other words, if used car prices fall, the whole system comes unstuck: automakers' earnings will likely fall and car finance companies (often a subsidiary of the manufacturer) may have to book writedowns on the value of their leased assets.

During the 2008 recession fewer people bought new cars, meaning there weren't so many used cars for sale in subsequent years. That's helped price to hold up fairly well, but there are signs that's all about to change.

Last month, Hertz Global Holdings Inc. warned of a big increase in depreciation rates for its rental fleet due to lower than expected resale values. It warned residual value pressures would continue into next year and that others in the industry "can't be immune to this factor."

There's more at the link.

Now Morgan Stanley has warned that the price of used vehicles may fall even more drastically, thanks to technological improvements.

The push for better safety on the road may inadvertently hurt used-car owners and investors in companies or other instruments tied to used-car sales and financing. The average age of used cars in the U.S., for example, is 11 years. Few if any of those cars are equipped with the latest ADAS features.

As safety features become the norm, “the average used car may be seen as a substantially inferior mode of transportation, an unacceptable safety risk, difficult to insure and worth less at auction," Jonas says. Indeed, in a typical economic downturn, used-car prices might drop 15% to 20%, but their accelerated obsolescence could see prices fall by up to 50% over the next few years.

This drop in value for used cars could ripple through the entire industry. “The used car is the consumer's currency," Jonas says. Falling prices could make it harder for car owners to trade up when they want something new. Given that 90% of new car purchases include a trade-in, manufacturers could also face challenges. If consumers get less for their older models, dealers might have to offer deeper discounts to make sales, and automakers could start to the feel the pressure to their bottom lines, too.

Again, more at the link.

Such advanced technologies may be desirable to some, but to those of us who've done without them all our lives, they don't appear to be all that vital or necessary.  I've been driving without them for the best part of half a century.  I daresay I won't feel deprived if I don't have them tomorrow . . . and if that means I can pick up my next vehicle for half what I'd pay for it today, I'm fine with that.

There are those who argue that cities will make such features mandatory on vehicles wishing to use their roads.  If we don't have the latest safety technology, we won't be allowed to drive there.  My answer to that is simple.  I have disposable income.  I can spend it where I please.  If cities, or suburbs, or areas make me unwelcome, I won't spend my money there.  I'll take my business somewhere else.  See how long their economy lasts when all of us in a similar position do likewise, and their sales tax revenues tank, and many of their stores close their doors due to lack of customers.  No, if they want me to have the latest technology in my vehicle, they can damn well pay for it.  I'm not going to waste my hard-earned dollars on it.

For those who can resist the desire to have the latest and greatest in transportation technology, with all the bells and whistles, it looks as if the next couple of years might be a lot more affordable than they appear at present.

Peter