As more new cars and trucks come equipped with standard autonomous safety features such as automatic emergency braking and lane departure prevention, the resale value of older vehicles is expected to plunge as they quickly become outdated.
A recent analyst report from Morgan Stanley Research predicts a sharp decrease in used car values could leave consumers with lower trade-in prices and higher monthly payments on new cars with more automation.
By 2021, used car values could drop between 20 and 50 percent, making it more difficult for owners to trade up for safer new models, according to the report.
For example, if a vehicle’s trade-in value dipped as low as 50 percent, leaving the owner with less to offer up front, payments on a $35,000 vehicle with a six-year loan could rise from $403 to $483 per month, according to Morgan Stanley.
“The used car is the consumer’s currency,” said Adam Jonas, an analyst at Morgan Stanley Research.
Advanced safety technology — including the beginnings of self-driving capability — is expected to quickly become standard on many vehicles.
Last year, 20 automakers agreed to make automatic emergency braking standard on almost all cars by 2022.
Toyota and Lexus plan to make safety technology packages standard equipment on most of their models by the end of 2017. The Honda and Acura brands also are starting to make the technology standard on some of their models.
“Standard safety equipment is coming in very rapidly,” said Egil Juliussen, a technology analyst at IHS Markit. “My guess is the marketplace is going to force everybody to do it so the government doesn’t have to mandate.”
Industry analysts have said the proliferation of advanced safety technology will likely lead to fewer fatalities and serious injuries on public roads.
The Race to Automation
No vehicle can yet claim to be fully autonomous. Many, though, are equipped with advanced automated safety features that have appeared more quickly than originally anticipated.
The Morgan Stanley report found that automatic emergency braking was included as standard equipment on 12 percent of new vehicles sold in 2016 and optional on 52 percent. Lane departure prevention was standard on 7 percent of vehicles and optional on 44 percent.
These two features are the quickest way to increase safety and prevent crashes, Juliussen said.
Some insurance companies offer lower premiums to customers who own vehicles equipped with automated safety features to encourage wider adoption, he said.
While Toyota is adding autonomous safety features as standard, other automakers are taking a slower approach because offering safety packages as optional equipment contributes to profits, Juliussen said.
Consumers typically pay an extra $2,500 to $3,000 for safety packages with automated technology, yet it costs automakers only about $450 to install them, Juliussen said. New safety features are one of the factors cited in the dramatic rise in the price of new trucks and SUVs over the past five years.
But rising traffic fatalities in the U.S. may encourage new vehicle buyers to start selecting models that offer the technology as standard equipment, he said. The National Highway Traffic Safety Administration reported a 7.2 percent increase in traffic fatalities in 2015 compared with 2014, the largest since 1966.
Another factor fueling public acceptance of the safety technology is the use of autonomous driving technology by electric car builder Tesla Inc., according the Morgan Stanley analysis.
Tesla’s semi-autonomous Autosteer feature reduced the likelihood of a crash by 40 percent, according to NHTSA. The electric vehicle automaker said that its next-generation update will make its vehicles 90 percent safer than those without the technology.
The company is planning to increase its production capacity with the release of the Model 3 sedan this year, and the Model Y compact SUV in a few years. By 2025 to 2030, Tesla will be able to gather 400 million miles of testing data per day, according to the Morgan Stanley report.
Combined with the expected improvement of Autosteer and other automated features, Morgan Stanley predicts the company will accelerate the “obsolescence” of used vehicles.
Wait and See
But others believe the new safety technology is just part of the automotive development cycle and note that previous advancements have not depressed used car values.
Several technologies that were once considered futuristic are now standard, such as air conditioning, anti-lock brakes and electronic stability control, ,” said Eric Lyman, vice president of industry insights for auto price forecasting firm ALG. “We didn’t see the vehicles without it suddenly were completely undesirable.”
At the same time, buyers are often unwilling to go without technology like navigation and blind-spot detection once they’ve had it, which could become true for emergency braking and other advanced safety features, Lyman said.
The moves by Toyota and Honda could be “a game-changer,” he said.
Bundled safety packages offered at little or no cost would support the theory of “a greater divergence in values of vehicles that don’t have this content,” Lyman said.
For example, the Honda CR-V will soon feature standard automated safety equipment, widening the gap between new models and the used ones without it, possibly forcing the price of used CR-V models to drop, he said.
There will be a confluence when the majority of new vehicles will have advanced safety features and there will be a bubble of used vehicles reentering the market, Lyman said. “But again, I still don’t think it’s going to be the bottom falling out of the values.”