Auto Dealer Stocks React Favorably As NADA's May Used Vehicle Index Shows Growth

Stocks exposed to used car sales and auto lending spiked Tuesday following a data correction from the National Automobile Dealers Association regarding its used vehicle price index.

The index was reported on Monday at 107.8, a negative 10.3 percent change year over year and negative 2.2 percent month over month.

The corrected values showed better numbers, with the index at 111.1. Compared to last year, the index change is still negative at 7.6 percent, but it the new figure showed it being up 0.8 percent month over month.

Piper Jaffray Commentary

In analyst Kevin Barker’s Monday note, he said pressure on used vehicle prices should continue through 2017 and into early 2018 — the result of a mass of new cars coming off lease.

He noted that declining used car prices and the resulting loss severity on defaulted loans have been driving increased losses for auto lenders.

“We expect auto lenders with a greater exposure to more credit sensitive borrowers (i.e., subprime) and leasers to feel the most pressure from the decline in used vehicle pricing,” Barker said.

Despite a continuing stream of negative headlines, the analyst believes that patient investors will be rewarded in the long run.

Stock Movements

Avis Budget Group Inc. CAR jumped on the incorrect index numbers Monday, peaking up 8.8 percent to $23.50. Half of those gains were erased at the close.

With the raised correction on Tuesday though, shares quickly spiked to $24.20. As of 1:10 p.m. ET the stock had pulled back to the high-$22 handle.

Hertz Global Holdings, Inc HTZ showed a similar movement on Monday, jumping over 5 percent to $9.26 before closing about where it had opened. On Tuesday it spiked to $9.32, close to where it had been mid-day June 7.

Ally Financial Inc ALLY was much less volatile Monday, closing about 1 percent down. On Tuesday it fell sharply near the open, down to $18.92, but recovered just as quickly and sat around $20 as of 1:10 p.m. ET.

Santander Consumer USA Holdings Inc SC moved in the same pattern as Ally on Monday, closing about 1 percent lower than the open, but only a cent off from the June 9 close at $11.45. On Tuesday, it dropped to $11.49 before rocketing up to its current high-$11 range.

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