Now is a good time to be in the market for a car purchase.

It is not a good time to own stock in car companies.

Why?

Because used car values continue to fall.

The seasonally adjusted Used Vehicle Price Index by J.D. Power Valuation Services is down 7.1% year-over-year and down over 13% from its peak in mid-2014. It’s at the lowest level since September 2010, when prices were still spiking from the cash-for-clunkers program.

What is the Used Vehicle Price Index?

That’s good question.

This is straight from Nada’s website (JD Power bought Nada).

We continually gather and analyze the latest automotive industry trends in order to keep you informed and to provide crucial guidance for every business decision on the purchase, sale, loan, lease or assessment of a used vehicle. We publish monthly NADA Guidelines, which recaps industry activity, predicts what lies ahead in the marketplace and explains movement in the used vehicle valuation market. Also every month our executive automotive analysts present comprehensive video market overviews and blogs based on this extensive knowledge base and expertise.

So the Used Vehicle Price Index gives you an idea of the general price direction of used cars.

Will it get worse for car companies before it gets better?

Yes it will.

New vehicle sales in April dropped 4.7% year-over-year. For the first four months, sales are down 2.4%.

So people bought fewer cars this past year.

To make matters worse, the number of cars sold at wholesale auction is up 7% year over year.

Rental car companies caused this by turning over there fleet.

So you have increased supply and decreased demand.

This will push prices lower for the foreseeable future.

In case you need a refresher on Supply and Demand, here’s a video:

Summary

So you might want to think twice about investing in car manufacturers in the near future.

But if you already own stock and still really believe in the company, just be mentally prepared for a rough car market.

Hey if you need to replace your existing car, now might be a good time.

Do you own any car manufacturer stock?

If so, let me know in the comments below.

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