Slump in used cars to hit Ford and GM

General Motors (GM) and Ford Motor’s finance arms are likely to face multibillion-dollar losses linked to the dramatic drop in used-vehicle prices, JPMorgan Chase & Co. analysts say.

Prices are falling faster and steeper than JPMorgan was expecting, lead analyst Ryan Brinkman wrote in a report on Monday, citing mid-month data from Manheim.

The auction firm’s closely watched used-vehicle value index 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 real losers 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 $3bn at GM Financial and $2.8bn at Ford Credit.

The spread of the coronavirus has caused a dislocation in the $1.5-trillion used-car market. Physical auctions have been halted for weeks along with much of the rest of the economy. Once they resume, dealers and rental car companies are expected to flood them with vehicles to raise cash as they brace for months of l ower demand.

“What we’re seeing right now is essentially the market is illiquid,” Jennifer Laclair, the CFO of Ally Financial, said on an earnings call.

The lender had been expecting a 5%-7% drop in used-car values for the year.

“We’re a bit in wait-and-see mode, and we think we’ll have a much clearer sense of used-car prices once shelter-in-place orders are lifted and auction activities can resume more normal levels,” Laclair said.