General Motors Co. and Ford Motor Co.’s finance arms likely face multibillion-dollar losses linked to the dramatic drop in used-vehicle prices, JPMorgan Chase & Co. analysts said.
Manheim, North America’s largest auto-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% 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 Monday. Earlier this month, he predicted a 15% 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,” Brinkman wrote. If prices finish the second quarter 10% lower than envisioned, he estimates losses could total $3 billion at GM Financial and $2.8 billion at Ford Credit.
GM shares fell as much as 4.6%, while Ford dropped as much as 4.1%. The stocks have declined about 40% and 46% this year, respectively.
Vehicle prices are likely going to come under significant pressure in the coming months as rental-car firms including Hertz Global Holdings Inc. and Avis Budget Group Inc. offload far more vehicles than usual to adjust to lower demand and raise capital, Brinkman said. Hertz shares plunged as much 8.2%, while Avis fell as much as 6.3%.