Used Auto Pricing Continues To Send Cautionary Signals For US Autos

All evidence continues to point to a deterioration of the U.S. auto market, but the ultimate question on investors’ minds is how severe the fallout will be for the auto industry. The latest statistics from the National Automobile Dealers Association indicate used auto prices fell 10.3 percent in the month of May. The drop-off suggests market weakness is accelerating after NADA reported roughly 7-percent year-over-year pricing declines in March and April.

Car Trends And The Used Market

Declining used auto prices typically put pressure on new car sales as well, which have predictably been soft so far in 2017. Typically, a 1 percent decline in used car prices corresponds to a 0.2 percent decline in new car prices, Deutsche Bank analyst Rod Lache said.

“We remain concerned about deteriorating affordability, delayed trade-in cycles, consumer shifts from new to used, diminishing credit availability, and deteriorating mix/pricing,” Lache wrote on Monday (check out Rod Lache's track record).

Two of the key drivers of U.S. new vehicle sales have historically been an expanding customer base of licensed drivers and the retirement of older vehicles getting scrapped. Both of those demand drivers have been declining in recent years, Lache said.

The weakness in pricing is not hitting every vehicle segment equally. In fact, pickup sales are up 45 percent year to date.

Deutsche Bank is cautious on most auto manufacturers and auto parts stocks in light of what appears to be a cyclical downturn. However, Lache is not advising investors to dump all their auto stocks just yet.

Deutsche Bank Ratings

Deutsche Bank maintains Buy ratings on CarMax, Inc KMX and Carvana Co CVNA. The firm has Hold ratings on General Motors Company GM, Ford Motor Company F, Fiat Chrysler Automobiles NV FCAU, AutoNation, Inc. AN and Asbury Automotive Group, Inc. ABG.