Are new vehicle sales in the U.S. expected to increase even higher in 2016? And what impact might this have on used vehicle values? in The Wall Street Journal has to say about it…….
New vehicle sales likely reached their highest level ever at about 17.5 million vehicles in the U.S. and may have been higher than China’s new vehicle sales total. Analysts are wondering if the U.S. could hit the 18 million mark in 2016.
An improving labor market and low interest rates have been fueling U.S. car buyer demand, and that’s likely to continue in 2016. Gasoline prices are expected to stay low, which is helping grow pickup and SUV sales. Sales incentives may be at fairly high levels this year, but the rising average cost of vehicles sold may continue to offset these incentive increases.
Softening used car prices brings more risk to the automotive industry. Used car prices had remained firm in recent years, but increased supply from trade-ins and off-lease vehicles are expected to bring down used vehicle prices in the U.S. this year. There’s concern that a visible used car price drop could cannibalize new vehicle sales.
ADESA’s Tom Kontos says that trade-in values have been worth less lately, which means that consumers sometimes reconsider buying a new car if they can’t find as much equity in the deal. Average terms of new-vehicle loans are climbing, which can further reduce the consumer’s equity value.
That could bring back the new vs. used vehicle sales competition at dealerships that were seen very often in 2011 through 2013.
Watching what the Federal Reserve may do will be closely followed by auto industry observers. A significant rate increase could tighten industry profits, said Mark Wakefield, head of the automotive practice at consultants AlixPartners LLP.