An ‘unprecedented’ disruption is ahead for the $1.5 trillion auto market

The pandemic will disrupt the auto industry by flooding the used-vehicle market with supply that won’t be met with demand.
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| Updated on: 17 Apr 2020, 09:04 AM
File photo used for representational purpose. (Bloomberg)
File photo used for representational purpose. (Bloomberg)

The coronavirus pandemic will significantly disturb the auto industry by flooding the used-vehicle market with supply that won’t be met with demand from quarantined and distressed consumers, according to Morgan Stanley analysts.

(Also Read: Coronavirus will kill shared mobility: Future transport may have fewer buses)

“We would urge investors to prepare for unprecedented imbalances in the supply/demand for used cars through the rest of the year," analyst Adam Jonas wrote in a report.

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The dislocation will have far-reaching implications, since roughly 90% of U.S. purchases of new autos involve a trade-in of a used vehicle or the return of a car that’s been leased, he said.

The total value of the U.S. used-car population is about $1.5 trillion, and consumers have borrowed about $1.3 trillion to finance auto purchases, Jonas wrote, citing his own estimates and data from the Federal Reserve Bank of New York.

“A small change in the value of used cars can drive substantial changes in the ability to borrow and willingness to lend," Jonas said.


First Published Date: 16 Apr 2020, 10:17 PM IST
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