New Car Sales Are Hurting The Value Of Used Cars

With car sales in the U.S. increasing for seven straight years, it is having a negative impact on used car values.

According to a report in Bloomberg, citing data  from Black Book, the auto analytics company,  the average used car saw 17 percent of the value of the vehicle decline during the last 12 months. The value has dropped from $18,400 to $15,300. The depreciation figure each year has also been increasing, with the average used car depreciating close to two times as fast as in 2014, when the annual depreciation rate was 9.5 percent reported Bloomberg.

“We’ve got ourselves in an oversupply situation,” Jim Hallett, chief executive of KAR Auction Services told Bloomberg. The company sells about 5 million used cars each year. “Nobody is interested in stockpiling inventory right now.” When it comes to used cars there are some that are losing their value quicker than others. Subcompact cars such as the Honda Fit and big sedans like the Chevrolet Impala are seeing their values decline faster than the industry average. Meanwhile, SUVs, vans and pickup trucks are retaining more of their value. Imports, noted the report, tend to lose their value quicker than domestic vehicles.

While used cars are losing their value at a quicker pace thanks to a surge in new car purchases, that area of the market isn’t without its own problems. According to Bloomberg, with car makers providing big incentives on new cars to keep up the sales momentum, it is resulting in a lot of drivers that owe more on their car loans then what the vehicles are worth, otherwise known as being upside down on their loans.  KAR Auctions told Bloomberg it is seeing an increase in the number of repossessions. It is expecting close to  2 million vehicles to be seized by lenders in 2017, up from 1.1 million at the height  of the last recession.