Morgan Stanley: The Biggest Decline Ever For Used Car Prices Is Coming

A recent Morgan Stanley research report focused on the world of used car sales.

The report centered around the Manheim Used Vehicle Value Index, which rose 0.7 percent year-over-year to 123.3 in November.

According to the report, the average used vehicle price in November was $10,043, up 0.2 percent year-over-year and 1.4 percent month-over-month.

Despite the uptick in the November numbers, Morgan Stanley’s outlook for the future of used car prices is grim. Analysts predict the largest extended decline in used auto prices in U.S. history over the coming years. Although the potential for a bounce in prices is possible in the near-term, analysts are convinced that any such bounce would be short-lived.

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Morgan Stanley sees a number of reasons that used auto prices will be under unprecedented pressure soon, including a deteriorating Japanese Yen, a glut in U.S. used car supply, and readily-available auto credit.

Moreover, analysts predict that the used market will continue to be flooded with off-lease and off-fleet vehicles in the near future.

Morgan Stanley believes that rental car companies could be under pressure as well. “While U.S. car rental companies may switch to program cars with buyback clauses (vs risk fleet) to mitigate the potential downside, we warn that [manufacturers] may offer less attractive deals to car rental firms.”

This prediction opens the door for a potential opportunity to short car rental stocks, such as Avis Budget Group Inc CAR and Hertz Global Holdings, Inc HTZ. Morgan Stanley currently rates both of these stocks at Underperform.