As New-Vehicle Prices Rise, Consumer Interest in Used Vehicles Increases

To some consumers, there’s nothing like the smell of the new vehicle they bought. But to many more buyers, a used vehicle is just fine, especially a nearly new vehicle that’s come off lease and offers an attractive price proposition.

Such is the nature of today’s changing vehicle market.  

“Vehicle demand is shifting towards used,” says Charlie Chesbrough, senior economist for Cox Automotive.

“New-car segments are under the greatest threat,” he adds, noting that many consumers, given the choice of buying a new sedan or an off-lease 2- or 3-year old CUV with high quality, high content and low mileage, will opt for the latter in today’s CUV-crazy market.

Chesbrough emphasizes overall conditions are strong for both the new- and used-vehicle markets. He foresees no meltdowns, crediting an economy that is relatively strong, though not without some issues such as rising interest rates and gasoline prices.  

But things are looking better for the pre-owned market. Used-vehicle sales hit 39.3 million last year, up 1.8%. New-vehicle sales dropped 2% to 17.1 million. Wards Intelligence predicts they will drop again, to 17 million this year. Meanwhile, Cox predicts used-vehicle sales will rise to 39.5 million this year.    

One of the growth impediments the new-vehicle market faces is affordability. Prices are rising at record paces, partly because vehicles coming off the line contain so much advanced technology.

“Vehicle affordability will become a bigger issue” as automotive consumers weigh what to buy, Chesbrough tells Wards. “Prices coupled with low wage growth are creating headwinds.”

Affordability is becoming more difficult and the used-vehicle market is proving a value alternative, he adds. (Chesbrough pictured, left)

And that market keeps getting replenished because of waves of vehicles coming off lease, an expected 3.9 million this year and 4.1 million in 2019, he says. Moreover, those vehicles are certified, reconditioned when necessary and come with warranties.  

Since the record 17.4 million new-vehicle sales year of 2016, the cost of a $30,000/5-year auto loan is up $500 and the average amount borrowed now stands at $30,500, up $1,871, according to Cox Automotive data.

On the positive side, unemployment is below 4%. “Some people would argue that’s full employment,” Chesbrough says. But he notes wage growth – a factor among many consumers as to what vehicle they will buy and when – is not as robust as the employment market itself.

It goes back to affordability. “That’s critical to most buyers’ decisions,” Chesbrough says. “Don’t ever forget these vehicles are expensive to many folks.”