Pre-Owned Gains Importance

LAS VEGAS — Franchised new-car dealers will sell more used vehicles this year, predicts Paul Taylor, chief economist for the National Automobile Dealers Assn.

Dealers will look for ways to increase used-car sales, and at least 100,000 additional pre-owned vehicles are likely to sell at franchised new-car dealerships in 2007, he says at the NADA convention here.

“Used-car sales and parts and service revenue will be an important focus for dealers this year,” he predicts.

Continued low unemployment, expected at 4.6% to 4.8%, also is expected to boost used-vehicle sales this year, Taylor says. An average of 130,000 people per month are returning to the workforce, and they are more likely to buy used vehicles than new ones, he says.

Last year, franchised dealership used-vehicle sales were the lowest of a 10-year period. Of a total 42.5 million used vehicles sold, franchised dealers delivered 14.3 million units, down from 16.4 million in 2005, according to Manheim Auction's latest Used-Car Market Report, released at the NADA convention.

Manheim reports franchised dealerships' average used-vehicle selling price was $10,875 in 2006, about $360 more than 2007 but down from the 10-year high in 2002 of $12,537. Franchised dealers generally sell newer used cars than independent dealers, whose average selling price last year was $8,675, Manheim says.

New-car incentives favoring low-rate finance deals, as well as some auto makers extending financing to subprime customers, shifted some shoppers away from used vehicles and into new ones last year, Manheim says.

Meanwhile, Taylor predicts new light-vehicle sales this year will be roughly equal to the 2006 mark of 16.5 million units.

He says a strong U.S. economy and new vehicle products — including an array of high-quality, fuel-efficient models — will spur new-unit sales.

“Most signs in the economy and market point to another solid year for sales of new cars and light trucks,” Taylor says.

But it won't be rosy enough to push new-unit sales higher than 2006 levels, he says. “Any significant increase in sales likely will be restrained by steady interest rates, as well as a continued slowing of home-mortgage refinancing.”

He says the U.S. economy probably could support a higher sales level than 16.5 million new units in 2007, but his forecast takes into account reductions in fleet sales that some auto makers plan this year.

Some analysts are predicting higher 2007 new-vehicle sales, Taylor notes. “We'll see who's right.”

He says “reasonably high” measured dealer optimism is not surprising considering that new-vehicle deliveries have exceeded 16 million units annually since 1999.