Used Car Bubble Has Finally Popped - Business Insider

Used Car Bubble Has Finally Popped - Business Insider
Despite Conflict, Gas Prices Are Stable And Trending Downward
Japanese Car Makers Cut Parts Prices In China After Anti-monopoly ...

Posted: 13 Aug 2014 07:39 AM PDT

REUTERS/Peter Jones

DETROIT (Reuters) - The U.S. auto industry will have to offer more discounts to maintain demand as prices for used cars decline.

With auto sales recovering from their recession-era slump, the industry's supply of used cars has started to rise again, driving down prices.

This in turn will pressure new-car prices and raise the stakes for automakers, which have enjoyed the new-car sales renaissance of the last 4-1/2 years.

To achieve annual sales above pre-recession levels of about 17 million new vehicles, "the automakers are going to have to increase incentives more," said Larry Dominique, executive vice president of research firm TrueCar Inc.

TrueCar estimates used-car prices will drop 5.2 percent by 2017, while new-car incentives, now at about $2,700 per vehicle, will rise about 11 percent over the next two years to nearly $3,000. The National Automobile Dealers Association forecasts a nearly 7 percent decline in the average used-car price to just under $15,000 in 2016 from $16,025 in 2014.

Meanwhile, new-car prices are rising because of the popularity of pricey features and more-expensive vehicles. They hit an average of $31,262 per vehicle last year and are expected to increase another 2 percent both this year and next, TrueCar said.

U.S. new-car sales averaged 16.7 million vehicles annually in the decade that ended in 2007, but they skidded to 10.4 million in 2009. Demand rose at a double-digit pace in the three subsequent years, increased another 8 percent to 15.6 million last year, and is expected to top 16 million this year.

Many of those cars, especially the ones coming off three-year lease deals, will be resold as used.

Dominique said the average age of cars on the road, now topping 11 years, would creep down as newer-model used vehicles enter the market.

Not everyone agrees.

Pete DeLongchamps, vice president of U.S. dealer Group 1 Automotive Inc, said that while used-car prices would continue to drop, pent-up demand for new cars remained strong because so many people delayed buying during the recession.

"There will be some shift in pricing, but I don't think it's enough to affect the market," he said.

Group 1, which derives most of its earnings from parts, service and financing, sold almost as many used cars as new ones in its latest quarter. Still, used models accounted for only about 13 percent of gross profit, compared with almost 20 percent from new.

Industry officials said still-high used-car prices had room to slip without significantly hurting new-car demand.

"This is a long-term, regular cycle," NADA analyst David Wagner said, "and not a bubble."

But while the auto industry, including U.S. automakers General Motors Co and Ford Motor Co, largely refrained from dramatically increasing profit-sapping incentives after the recession, experts have questioned whether that will hold given pressures the companies will face to increase sales and maintain share as demand growth slows.

"As the wholesale prices decline with respect to new vehicles, clearly it's a negative," said Tom Webb, chief economist for wholesale car auction company Manheim. "You can get in somewhat of a downward spiral."

(Reporting by Ben Klayman in Detroit; Editing by Lisa Von Ahn)

Despite Conflict, Gas Prices Are Stable And Trending Downward

Posted: 15 Aug 2014 12:17 PM PDT

Bengt Halvorson

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There's conflict in the Iraq and other oil-producing regions. At the same time, U.S. demand for crude oil is at record highs.

That sounds like fuel for a run-up in gas prices. Yet they've been almost eerily stable; they're even falling somewhat in most places, and they've been on a downward trend for at least a month.

So with new U.S. military action in Iraq announced last week, why aren't pump prices skyrocketing, as they have in the past when conflict happens overseas?

Prices had hiked earlier this summer, as part of a seasonal rise, but also related to worry about potential issues affecting global crude-oil supply issues in Iraq. Recent U.S. involvement appears to have soothed concerns about that, according to these numbers, and to a wide range of recent political and market analyses.

And according to a report released earlier this week from the U.S. Energy Information Administration (EIA), higher Libyan oil exports are contributing to the recent and significant five-dollar-a-barrel drop in the price of Brent crude oil (over June levels).

Pump prices trending downward

U.S. EIA short-term energy outlook (gas prices) - August 2014

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Barring further geopolitical developments, we're looking at a period—short-term and long-term—in which gas prices are going to be remarkably stable; and they'll likely fall somewhat at the pump. The EIA projected a U.S. average price per gallon of just $3.30 in December. That's part of a seasonal dip, but it represents a significant drop from today's $3.61 average price.

Also, the EIA predicts an average pump price over 2014 of $3.50, dropping to $3.46 over 2015. That's also down from 2013's average of $3.51 per gallon.

Meanwhile, the stabilizing force of higher U.S. oil production can't be underestimated. At around 13.6 million barrels per day, it's up around 50 percent versus just five years ago; and total U.S. crude production is up a million barrels per day in just a year and presently at its highest level since 1987.

Will cheap gas renew interest in gas-guzzlers?

That could add up to a tough time for automakers and brands who are waiting for $6-a-gallon gas to make premium-priced hybrids and plug-ins more financially beneficial.

Of course there is one other potential derailment to those trends—this one entirely within our nation's boundaries. As we've seen several times in recent years, U.S. prices are far more likely to spike, short term, as the result of refinery issues.

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Japanese Car Makers Cut Parts Prices In China After Anti-monopoly ...

Posted: 09 Aug 2014 08:18 AM PDT

Thomson Reuters

A worker walks in front the Toyota Motor Corp stage prior to the opening of the 15th Shanghai International Automobile Industry Exhibition in Shanghai

SHANGHAI (Reuters) - Japan's Toyota, Honda and Nissan became the latest foreign carmakers to respond to China's anti-monopoly investigation into the auto industry, as the probe's impact extends beyond foreign luxury auto brands.

GAC Toyota Motor Co, Toyota's joint venture with China's GAC Group, and Guangqi Honda Automobile Co, Honda's venture with GAC, both said late on Friday they would cut spare part prices due to the investigation.

Nissan's joint venture with China's Dongfeng Motor Group Co said it paid close attention to the regulator's suggestions and was actively studying improvements.

The moves came on the heels of price cuts by foreign luxury brands including BMW, Mercedes-Benz, Audi, Chrysler and Jaguar Land Rover over the past month, as China's price regulator, the National Development and Reform Commission (NDRC), steps up scrutiny of the industry.

China has also wielded its anti-monopoly law against other industries, including milk power and software. It targeted multinationals Mead Johnson Nutrition Co and Danone SA, which the regulator slapped with hefty fines, as well as U.S. chipmaker Qualcomm Inc, which faces the prospect of a $1 billion fine.

China's anti-trust investigations target monopolistic practices in general and aim to promote fair competition and protect consumer interests, China's Ministry of Commerce spokesman Shen Danyang said in a statement posted on the Ministry's website.

Both domestic and foreign firms must bear the due liabilities if they break the law, Shen said.

Industry experts say automakers have too much leverage over car dealers and auto part suppliers, enabling them to control prices, considered as a violation of China's anti-trust laws.

China, the world's biggest auto market, is dominated by foreign brands.

(Reporting by Samuel Shen and Pete Sweeney, editing by William Hardy)

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Saturday, 16 August 2014

Used Car Bubble Has Finally Popped - Business Insider

Used <b>Car</b> Bubble Has Finally Popped - Business Insider

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