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Consumers Are Spending More Money on Vehicles While New Vehicle Sales Decline

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A growing used vehicle market is taking sales away from the new vehicle market, but customers seem willing to pay more for new models

Large luxury vehicles are gaining popularity throughout the current new vehicle market

New vehicle sales are projected to decline year-over-year during the majority of 2018. Yet, most industry analysts, including J.D. Power, agree that the automotive market remains relatively healthy.

The reasoning behind this consensus is that while consumers are buying fewer new vehicles, they are paying more for those new vehicles.

A Growing Used Vehicle Market: Best used cars for the New Year

J.D. Power’s forecasts predict 13.8 million new vehicles will be sold in the U.S. during 2018. That estimate is 200,000 vehicles less than the number of new vehicles sold during the same period of 2017.

One reason for this decline in new vehicle sales is the rising number of used vehicles entering the market. J.D. Power predicts that the leases of 3.7 million vehicles will expire during 2018, thus returning those models to the used vehicle market.

The predicted number of vehicles re-entering the market is up from the 3.4 million leased vehicles that returned to the market during 2017. By 2019, that number is set to increase to 4.1 million.

Leased vehicles are getting ready to return to dealership lots
Photo:Sergey Rodovnichenko

“The used-car market is at risk of overwhelming the new-car market,” explains Thomas King, the senior vice president of J.D. Power’s data and analytics division. “That’s a problem for manufacturers, but for retailers, there is a tremendous profit opportunity on these used vehicles.”

But while an overabundance of used vehicles is set to draw customers away from the new vehicle market, those customers that continue to buy new are projected to spend even more money on vehicles. So far this year, the average new vehicle price is set somewhere around $32,200.

That is $500 more than the average price for vehicles in 2017. While sales of vehicles priced $40,000 or more are up by 4% year-over-year, sales of vehicles less than $20,000 have decreased by 19%, demonstrating a growing infatuation toward luxury vehicles among Americans.

2018 Impala Exterior

Sedans have lost 4% of their market share during the first three months of 2018 alone

The popularity of sedans has continued to diminish during 2018. In 2017, sedans made up 36% of the market; so far this year, sedans make up 32% of the market.

To make up for declining sedan sales, automakers are turning to fleets. Fleet sales represent 24.1% of new vehicle sales so far this year, up from the 22.5% of sales that were fleet sales throughout 2017.

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“Any way you look at it, the industry remains strong,” King elaborates. “Sure, sales could be better, but when you look at some of the other metrics, in absolute terms, it’s still very, very good.”

While the new vehicle market is in a healthy place for the moment, it remains to be seen if an increasing number of consumers will start selecting used vehicles as new models gain larger pricetags.

News Source: Automotive News (subscription required)