Used-Car Prices Begin to Slide in U.S.

Used-car prices in the U.S. have been slipping for the past six months, a trend that is building pressure on new-car retailing, Bloomberg News reports.

Last year, average used-car prices fell 4%, marking the first significant decline in eight years, according to the National Automobile Dealers Assn. The index has been shrinking year-on-year for the past six months.

The culprit is a wave of expiring leases that is dumping relatively new vehicles into the used-car market. J.D. Power estimates the volume of returns will grow about 9% this year to nearly 3.4 million vehicles.

Leasing helps buyers lower the monthly cost of a new car. But with average new-car prices now above $34,000, leasing has spread from the luxury end of the market to mass-market models, including pickup trucks. That means the growing volume of returns is impacting multiple sectors of the passenger vehicle market.

One analyst tells Bloomberg the effect has accelerated average used-car depreciation to 23% last year from a previous average of 18%. Faster depreciation erodes profits for leasing companies, which calculate monthly payments according to the projected value of the vehicle when the lease ends.

Bloomberg says the fallout has already prompted Ford Motor Credit Co. to lower its profit forecast for 2017 by $300 million. The news service says other lease-heavy financial companies are likely to follow suit.