New vehicle sales in the US have increased each of the past seven years, representing the longest unbroken streak of rising sales since the time of the Ford Model T, according to Bloomberg. It’s been a good seven years for automakers, but all those new vehicles that entered the market in that time are threatening to cut into profits.
And Ford, it seems, is suffering from that effect first.
“Ford is the canary in the coal mine,” says Connecticut auto industry consultant Maryann Keller. Ford Motor Credit Company is already cutting back on leasing; in the third quarter of 2016, it accounted for 18 percent of retail sales, says Bloomberg. That’s opposed to 26 percent of sales in the first quarter. The volume of available used vehicles has triggered quick depreciation, and as cars, trucks, and SUVs re-enter the market after being leased, their sticker prices are impacted.
That wasn’t such a problem when leasing was mostly a tool deployed by luxury car marques, but now that leases are more common even among ordinary brands like Ford, the effect could be felt throughout the market. “We haven’t seen anything that suggests that what’s happening to our portfolio is different from what’s happening across the industry,” said Ford Chief Financial Officer Bob Shanks back in November.
Data seems to back that up, with used cars depreciating roughly 23 percent on average last year – high than the usual rate of 18 percent – says Height Securities analyst Edwin Groshans, citing data from the National Automobile Dealers Association. “We expect this trend of above average annual depreciation to continue in 2017 and 2018,” he says.