Expect New Car Prices to Stay Well Above Used Car News

By Ted Craig December 24, 2018 705

New-cars are expected to continue growing less affordable next year, which is good for the used-car market.

 Most projections for new-car sales in 2019 expect the year finishing 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.
Affordability 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 affordability 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 $1,800more in interest over the course of a five-year finance contract.
“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-Chrysler-Jeep-Ram in Jackson, Mich.
Most analysts remain confident that interest rates will rise next year. The question 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.
Leasing peaked in 2016 and most of those leases will read end-of-term next year.
Jessica Caldwell, executive director of industry analysis for Edmunds, said “these shoppers are coming back to a very different market.”
Caldwell said these shoppers are unlikely to find a similar new vehicle at a comparable price. Unless the manufacturers increase their incentive offers, this means many might buy a used-car instead.
Of course, many of the cars come back will become certified pre-owned units, so franchise dealers might keep the customers either way.

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Last modified on Tuesday, 29 January 2019 14:32