UsedCarNews.com
January 7, 2019
Used Draws Buyers as New Prices Rise
LOOKING AHEAD IN
2019 LOOKING FORWARD: New-vehicle affordability is being driven down by a combination of higher interest rates, fewer incentives, consumer tastes and even tariffs to an extent. This means used-car prices have room to grow in the new year.
By Ted Craig
Rush - Dated Material
New cars are expected to continue growing less afordable this year, which is good for the used-car market. Most projections for new-car sales in 2019 expect the year inishing with a little less than 17 million units sold. While that is still a good year from a historic perspective, it’s another year of decline from the peak in 2016. Afordability plays a large part in these slower sales. Consumers are opting to turn their vehicles less often or buy a used car instead.
Patrick Manzi, senior economist for the National Automobile Dealers Association, said even consumers with stellar credit are doing the math and choosing to buy used vehicles. Two of the main factors impacting afordability are interest rates and incentives. On average, new vehicles are $3,000 more expensive now than they were three years ago, Edmunds reports. In addition, new-car shoppers can expect to pay nearly $1,800 more in interest over the course of a ive-year inance contract. The average transaction price in
December was on pace to reach $34,292, according to J.D. Power. This set a new industry record. “If incentives continue to go down and interest rates go up, it will put tremendous pressure on consumers with rising monthly payments,” said NADA Chairman Wes Lutz, president of Extreme Dodge-ChryslerJeep-Ram in Jackson, Mich. Most analysts remain conident that interest rates will rise again this year. In December, the Federal Reserve raised the benchmark interest rate for the ifth consecutive quarter. The question now is by how much.
The current consensus is between one and three more rate hikes by the Federal Reserve. The rate of incentives is less certain. So far, the manufacturers have shown considerable restraint despite slowing sales. Tom Kontos, chief economist for KAR Auction Services Inc., believes that could change in 2019. “The incentive to incentize will go up,” Kontos said. Part of this is because new-car dealers will have plenty of customers who need a new car in 2019 no matter what. Continued on page 5