Pre owned vehicles are becoming the strongest part of the market
So far in 2019, monthly payments on new car loans are $145 higher than those on used car loans and $67 higher than a new-car lease payment.
Chief economist for Cox automotive explains, “The strongest part of the market — from a retail sales perspective, it’s driving the finance growth, certainly driving the profitability of dealers, and very important to the franchise business, driving the CPO, and producing the strong vehicle values that are helping residuals and helping leasing be more attractive — is the strong used-vehicle market.”
In particular, a large supply of later model vehicles are becoming more affordable and attractive to buyers.
Not only are better used cars available for better prices, but the payments on financing are increasingly cheaper on used vehicles. In 2014, leasing a new vehicle was only $40 more expensive per month. Now, the difference of $78 is frankly too much for consumers.
Compounding payments on leases only increase the attractiveness of purchasing used – especially when 300,000 more vehicles will be coming off-lease, into the pre owned market.
With this, Black Book expects more consumers to be cautious with finances in 2019 because of uncertainty and the potential for a slowdown in the economy’s growth rate. Tensions with the United States and President Trump’s trade threats are causing uncertainty in global trade. But it could also prove to benefit the used car market.
Coming off the strongest years for car sales in 2017 and 2018, many analysts expected a sales decline. Year over year sales have decreased as expected, leaving rising inventories of unsold vehicles.
Overall, an increase in supply, cheaper financing and decreasing demand for new cars create a “perfect storm” for used cars and used car dealerships. For these reasons, we can expect to see more consumers turning to the used car market in 2019.