An ‘unprecedented’ disruption is ahead for the $1.5 trillion auto market
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.
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“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. 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.
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“A small change in the value of used cars can drive substantial changes in the ability to borrow and willingness to lend," Jonas said.
