Ford sold so many cars that its used car prices could plummet steeply.
Try as it might, there is no way the market can accurately predict changes that affect demand, and this is especially true with the auto industry. The year 2016 has gone down in history as one of the best years for the automakers, which has spurred many to amp up production numbers drastically. The only problem is that demand has begun to slacken, and this is causing an oversupply of vehicles that is and worried industry forecasters. Lucky for you, this is actually a good thing for gearheads.
As reported by , the massive supply of vehicles that has recently been injected onto American roads will come back to bite manufacturers in the behind. That’s because in 2017, the massive output of vehicles that factories have been churning out these past few years are beginning to infiltrate the used car market, driving prices down. Adding to the problem is the fact that a sizable 3.36 million leased cars and trucks will be returned during 2017, which will then be sold at dealership lots as certified preowned vehicles that compete with brand new cars for value. While this bodes well for used car buyers looking for lightly used vehicles, it hurts automakers’ financial service wings as well as those of lending institutions.
These institutions back auto loans and leases on the presumption that the leased vehicles will be able to be sold for a set price once the car is returned. With prices for used cars trending down, lenders stand to lose millions as they find that the cars that are returned to them are now less valuable than initially expected. Ford Motor Company’s financial-services segment has already cut $300 million from its 2017 profit forecast, and many analysts are seeing the slash as a sign of what's to come for the rest of the industry, with forecasters warning GM, FCA, and other automakers to slow down on the practice of leasing. The glut in used car inventory is being signaled by an increase in car depreciation, which hit a high of 23 percent last year.
This is up from the average annual rate of 18 percent, as claimed a Height Securities report citing the National Automobile Dealers Association’s Used Car Guide. The issue is compounded by the fact that higher vehicle values allowed lenders to give consumers lower lease rates since they expected to recuperate the money when the car went on sale after the lease period had ended. Unfortunately for automakers, there is no one to blame but themselves for giving into the short-term gain mentality and offering aggressive discounts on leases and heavy incentives to move high volumes of vehicles while failing to focus on the long-term implications of deferring these losses.
With Ford showing the first signs of loss from these practices, it’s likely that other automakers and FCA will see their financial lending segments hit by the downward trend in vehicle valuation. For the enthusiast, this may mean we are entering into a time where our favorite cars could be had for cheap as long as we don’t mind the fact that it had a previous owner.