VIDEO Years of pent up demand led to the best auto sales ever. Low interest rates and new innovations help get car buyers off the sidelines and into new vehicles. But there’s a problem. This carousel is about to end, especially on the luxury side of things. As part of that new wave of car buying, a great deal of vehicles were being leased. That’s great when you’re reporting your numbers but not so great when it’s time to turn those leases in. What’s happening right now is a glut of supply in used cars. This supply glut is putting pressure on used car prices. That, in turn, really hurts the new car sales because it’s making leasing more expensive. When you lease a car essentially what you are doing is financing the expected depreciation of the new vehicle. In order to calculate the depreciation, finance companies use what’s known as a residual value. This is the agreed upon value which the customer and the dealer say the car will be worth at the end of the lease. As used cars flood the market they drop the prices of used cars and send residual values tumbling. That then makes new cars harder to lease because the customer has to pay for more depreciation. This is occurring as new car prices are rising and interest rates are on the move. That sets up a tough scenario for new cars. Enter today’s Bear of the Day Nissan (Obviously Nissan owns its namesake but it also owns the luxury car brand Infiniti. It’s the Infiniti side of the business that’s likely to come under pressure this year. While luxury crossover SUVs have been hot selling items, the sedan segment is likely to struggle. For luxury car makers, this could lead to more lean times. NSANY - Free Report) . Analysts agree as they’ve come out and dropped their earnings estimates for Nissan. We’ve seen our Zacks Consensus Estimates drop for the current quarter, next quarter, current year and next year. The most dramatic shift has been seen in our number for next year where consensus has gone from $2.71 to $2.48. That now represents only a 1 penny gain over the current year now calling for $2.74 after being as high as $2.64. Investors looking for other ideas within the import auto space should take a look at Tata Motors ( and TTM - Free Report) Toyota Motor Corp (Both are currently Zacks Rank #1 (Strong Buy) stocks. TM - Free Report) .
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