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All those years of rising U.S. auto sales are starting to work against carmakers.
A glut of used vehicles has started to depress prices. That trend will intensify as Americans will return 3.36 million leased cars and trucks this year, another jump after a 33 percent surge in 2016, according to J.D. Power.
The fallout already has begun, with Ford shaving $300 million from its financial-services arm's profit forecast for this year.
'Ford is the canary in the coal mine,” said Maryann Keller, a former Wall Street analyst who's now an auto industry consultant in Stamford, Conn.
This drag may be hitting the rest of the industry, too. A National Automobile Dealers Association index of used-vehicle prices declined each of the past six months of last year.
When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck's value when it will be returned for resale. If vehicles are depreciating more than expected, losses can pile up.
The NADA Used Car Guide's price index dropped about four percent last year from 2015's average, the first significant decrease since the recession. The boom in cars and trucks coming back off leases will continue into 2017, rising about nine percent, J.D. Power estimates.
The impact of falling used prices also has hit Hertz Global Holdings Inc. The rental-car company replaced its CEO last month, weeks after cutting its annual earnings forecast due to the falling value of its cars.
The average used car depreciated about 23 percent last year, faster than the average annual rate of 18 percent, Edwin Groshans, an analyst at Height Securities, said in a report Friday, citing NADA'S data.
'We expect this trend of above-average annual depreciation to continue in 2017 and 2018,” Groshans wrote. This may drag on auto-finance companies including Capital One Financial Corp. and Ally Financial Inc., he said.
Leasing has helped consumers afford new vehicles becoming more expensive than ever. Prices have climbed 13 percent to $34,067 over the past five years, according to Edmunds.com, a rise partially driven by booming popularity of pricier trucks and sport utility vehicles.
In the past, leases primarily were a tool used by luxury automakers such as BMW AG and Daimler AG that could rely on them for as much as 70 percent of sales, Keller said.
'The difference this time - versus the last time we had a leasing bulge - is that leasing today doesn't just apply to luxury cars,” she said. 'It's become a mainstay in mass-market cars and even pickup trucks.”
Ford Motor Credit is now starting to cut back on leasing, relying on it for 18 percent of retail sales in the third quarter, down from 26 percent in the first quarter.