Kontos: Recession to Mirror Pandemic ‘Curve’

By Staff Writer April 09, 2020 686

 

The recession in the wake of COVID-19 could resemble the “curve” discussed by the Coronavirus Task Force, according to Tom Kontos, KAR Global chief economist.

Kontos, in the recent edition of his Kontos Kommentary, looked at the current economic shutdown in light of past economic downturns.

“Because the last 10 years have represented the longest expansion on record, one must go back to the Great Recession of 2008-09 and the 9/11 timeframe to find downturns and shocks to the economy that negatively affected wholesale values for a sustained period of time,” wrote Kontos, providing a chart to illustrate his point.

 

 

Kontos said the post-9/11 recession lasted between March and November but had a “short-lived effect on wholesale values.”

The continued price declines after October were “due primarily to an influx of off-lease volume and high new vehicle incentives even as the economy rebounded. The downturn in average prices after 9/11 continued for 20 months until May of 2003, which I described as an ‘inflection point’ in the wholesale market at the time,” Kontos reported.

He said the more dramatic fall in wholesale prices during the Great Recession from Dec. 2007 to June 2009  was followed by a quick recovery.

Kontos compared those downturns with the forced stoppage of economic activity in much of the country now.

“The recession that this has induced will likely follow a pattern that mirrors the ‘curve’ of the pandemic often talked about by Dr. (Anthony) Fauci in his press briefings,” Kontos stated.

Kontos said that just as the pandemic was likely to worsen before it got better, when auctions resume some semblance of pre-March level of sales and conversion rates then used vehicle prices are likely to fall by the same double-digit year-on-year levels we saw both post-9/11 and during the Great Recession.

“So, the duration of the decline will likely correspond to the length of the current recession, which again depends on the timing of resumption of social and economic interaction as the pandemic is contained,” Kontos said.

“And, it’s best to expect that upticks in used vehicle values are several months down the road, though strong demand for used vehicles in tough times, supportive government fiscal and monetary policies, and low oil prices should help limit the damage.”

 

 

Watch February 2020 Kontos Kommentary, Tom Kontos, Chief Economist at KAR Global, provides his insight and updates regarding the current used vehicle market conditions.

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Last modified on Tuesday, 14 April 2020 15:13

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