Used car values have skyrocketed over the last 12 months – up 45% YoY!
- Increased demand: Consumers are sitting on savings that they have accumulated over the last 12 months, and are leveraging that money for larger purchases.
- Decreased supply: Troubles with new car production due to factory shutdowns and semi-conductor shortages have limited production, and pushed demand for used vehicles.
- Changes to consumer behaviour: Limits on other forms of travel have forced families to road-trip instead of taking planes and trains.
These conditions have led to 3/4 of all used vehicles going above sticker price in June.
What does this mean for auto lenders?
If used cars prices are temporarily inflated, in a year or so prices will naturally come back down. That means the loans being written today at 120% LTV carry significant valuation risk once markets normalize.
Much like the 2008 housing crisis where appraisals over LTVs skyrocketed on homes and then crashed, analysts worry that there may be similar risks in the used auto market right now.