JP Morgan sees used auto prices stabilizing

May 09, 2022 3:53 PM ETAvis Budget Group, Inc. (CAR), CPRT, KARF, GMBy: Kevin P. Curran, SA News Editor6 Comments

Car parked at parking lot of the airport for rental. Aerial view of car parking lot of the airport. Used luxury car for sale and rental service. Automobile parking space. Car dealership concept.

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The first signs of stabilization in used car prices has promising implications for rental companies and automakers themselves, according to JP Morgan.

A team of analysts led by Ryan Brinkman wrote that the supply of new vehicles has improved from the peak chip shortage in September 2021, creating healthier industry dynamics. The team pointed to the Manheim Used Vehicle Value Index, which is well off the all-time record levels reached in December, as a key indicator of this dynamic.

Brinkman noted “there is clearly demand destruction” particularly for higher priced vehicles, but the high cost of new vehicles may help stabilize prices near present levels.

“While demand for used vehicles may be moderating, the price of substitute new vehicles continues to see enormous inflationary pressure, including from raw materials, energy (electricity and natural gas), freight & logistics, and labor, prompting us to continue to forecast an arresting and even potential reversal of the YTD decline in used vehicle prices,” his team wrote. “This should be good for the stocks of companies levered to the price of new and used vehicles such as [Avis Budget Group] (NASDAQ:CAR), [Hertz Global Holdings] HTZ, & [Copart,Inc.] (NASDAQ:CPRT) and negative for those more levered to their volume such as all suppliers and [KAR Auction Services] (NYSE:KAR).”

Additionally, the strong used vehicle environment is noted as positive for automakers’ captive finance subsidiaries, with General Motors (GM) and Ford (F) being prime examples.

Read more on the issues confronting auto rental stocks.

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