Used-Car Prices May Rebound as Loan Terms Ease: Chart of the Day

Used-car prices are poised for a rebound as dealers find it easier to borrow money to buy them, according to Christopher Agnew, an analyst at MKM Partners LLC.

As the CHART OF THE DAY shows, more banks are easing the terms of commercial and industrial loans than tightening them, according to a quarterly survey of senior loan officers by the Federal Reserve. The chart displays an average of readings for larger and smaller banks, as Agnew did in a report yesterday.

Prices for used cars have dropped as much as 6.8 percent from their peak in May 2011, according to an index compiled by Manheim Auctions, the world’s largest auto reseller. August’s reading of 122.3 was released yesterday and showed the first year-over-year increase since March 2012.

“The Fed loan survey is a bullish leading indicator,” Agnew wrote. The Stamford, Connecticut-based analyst added that its correlation with the Manheim index since June 2007 has been 74 percent. The highest possible reading is 100 percent, which would show the two gauges have moved in lockstep.

Availability of credit is just one reason why the used-car market is healthy, he wrote. Cars coming off leases and coming out of rental fleets “are more desirable models” than in past years, the report said, and the supply of off-lease vehicles will be relatively small for the next two years.

The outlook bodes well for Hertz Global Holdings Inc. (HTZ), the second-largest U.S. car-rental company, and Avis Budget Group Inc. (CAR), the third biggest, he wrote. Agnew recommends buying shares of both companies.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Chris Nagi at chrisnagi@bloomberg.net

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