According to Edumunds.com and other experts in the industry, used car sales are expected to continue rising through 2020. An estimated 39 million used cars are expected to be sold in 2018 before year’s end.
This rise in used car demand and pricing comes in spite of predictions made earlier this year that used car sales were set to decline. There are a number of factors affecting the strong used car market. Here is a quick look at the reasons for the rise:
Tariffs on Imported Vehicles
Tariffs imposed in imported vehicles and imported parts and materials have already started to take their toll on the U.S. Auto industry. Ford is already claiming the tariffs will cost them $1 Billion in profits and the tariffs are guaranteed to reduce supply of new vehicles in the market and raise prices for any imported vehicles, or vehicles containing high quantities of imported parts or materials. All of this increases the appeal for used vehicles.
In addition to rising prices and limited supply of new vehicles, used vehicles are also experiencing a shortage. With the recent economic boom, more buyers are able to pay their bills, this means that repossessions are down. Compound this with the slow sales of new vehicles from 2008-2011 due to the Great Recession, and there simply isn’t enough supply of used vehicles to keep up with demand.
Rising Interest Rate and Stagnant Incentives
Another reason for the used vehicle boom is that interest rates are on the rise. Manufacturers also seem to be getting stingier with incentives. This puts the cost of owning a new vehicle out of reach for more and more buyers and used vehicles are an appealing alternative.
Jessica Caldwell, Edmunds executive director of industry analysis, noted that “Used vehicles will likely grow in popularity as new-car substitutes if incentives continue to stagnate and interest rates creep up. A large quantity of near-new used vehicles are expected to come into the market that will undoubtedly offer a compelling value message that resonates with discerning new-car shoppers.”
The final reason is that dealers are betting strong that new vehicle prices will continue to rise. Many dealers have stocked up on inventory, which in turn increases cost of acquisition for all dealers. This can be a risky proposition, however, as rising flooring interest can get expensive for overaged inventory, but the increased consumer demand also equates to increased dealer demand. As long as consumers are willing to pay the higher prices, dealers will continue to stock and supply the used car market with higher-priced vehicles.