General Motors and Ford Motor’s finance arms could face multibillion-dollar losses linked to the dramatic drop in used-vehicle prices, according to analysts from JPMorgan Chase.
Manheim, North America’s largest car auction company, for the first time ever released a mid-month view of its closely watched used vehicle value index last week, citing the level of “turbulence” in the auto market. Wholesale prices plunged 11.8 per cent in the first 15 days of April, a decline that will easily set a record if it holds for the full month.
The index reading suggests prices are falling faster and steeper than JPMorgan was expecting, lead analyst Ryan Brinkman wrote in a report on Monday. Earlier this month, he predicted a 15 per cent drop within months.
“The real losers of the development are likely the captive-finance subsidiaries of automakers like GM and Ford, and the rental-car companies,” Mr Brinkman wrote. If prices finish the second quarter 10 per cent lower than envisioned, he estimates losses could total $3 billion (Dh11bn) at GM Financial and $2.8bn at Ford Credit.
GM shares fell as much as 4.6 per cent, while Ford dropped as much as 4.1 per cent. The valuation of the two car giants have declined about 40 per cent and 46 per cent this year, respectively.
Vehicle prices are likely going to come under significant pressure in the coming months as rental car firms including Hertz and Avis Budget Group offload far more vehicles than usual to adjust to lower demand and raise capital, Mr Brinkman said. Hertz shares plunged as much 8.2 per cent, while Avis fell as much as 6.3 per cent.
