With spring unofficially ending with Memorial Day weekend just ahead, Black Book and J.D. Power Valuation Services took in-depth looks at what happened in the lanes during the spring market and a few general economic trends that unfolded.
Edmunds also considered the ongoing challenge automakers face trying to retail green vehicles.
Black Book acknowledged that spring is typically viewed as a strong season for dealers since many people receive their tax rebate checks and immediately use them to purchase a used car or truck. This past spring season — which editors considered to take place between Feb. 1 and May 1 — four mainstream car segments increased on average by 3.0 percent. That group included:
— Sub-compact car: up 2.6 percent
— Compact car: up 5.3 percent
— Midsize car: up 3.1 percent
— Full-size car: up 1.0 percent
For the prior year, editors recollected the spring seasonality lift in values see was slight. During the same months in 2017, Black Book indicated the values on these car segments was almost flat, increasing by just 0.3 percent.
During the same period of 2016, Black Book mentioned only one of these car segments increased in value. Overall, values declined by 0.9 percent on average across the four segments.
“I believe what we’re seeing is a handful of factors coming together this spring season that has brought us to a strengthening of the used market for mainstream car segments,” said Anil Goyal, executive vice president of operations at Black Book.
“With lower demand, these sedan segments dropped in value for used vehicles, entering 2018 where their prices reached a point of attractive value for many shoppers,” Goyal continued. “Second, much of the excess used supply was absorbed in late 2017 due to replacement demand caused by the hurricanes.
“Third, the additional money due to the tax reform has helped with vehicle affordability. Fourth, the economy continues to hum along with consumer confidence reaching its highest point in 17 years,” he went on to say. “Lastly, with gas prices on the rise, there are a few more shoppers looking at mainstream sedans with fuel economy in mind."
More analysis of the economy and gas prices
The spring edition of Perspective generated by the J.D. Power Valuation Services picked up on Goyal’s thoughts and took an expanded look at recent economic activity and where prices at the pump might be going.
J.D. Power Valuation Services recapped that the U.S. Bureau of Economic Analysis (BEA) revised estimates of Q4 GDP growth. The estimate lifted from 2.5 percent to an annual rate of 2.9 percent.
Analysts explained the primary causes for growth have remained consistent over the past several months: personal consumer expenditure, nonresidential fixed investments, exports and federal government spending.
The BEA also indicated real GDP grew by an annual average of 2.6 percent in 2017, a marked increased from 1.8 percent growth during 2016. The BEA expects a similar growth trend as analysis evolves into 2018.
Meanwhile, J.D. Power Valuation Services pointed out that the unemployment rate remained unchanged at 4.1 percent in March as employment grew in manufacturing, health care, mining, and professional and business services. Report authors noted that the March 2018 U6 unemployment rate — which measures discouraged, part-time, or underemployed workers in the economy — sits at 8 percent, which is slightly down from 8.2 percent in February.
The recap in Perspective also said non-farm employment increased by 103,000 jobs in March with most jobs coming from manufacturing, health care and mining. This was a marginal increase in job growth, following February’s growth of 326,000 jobs.
Furthermore, J.D. Power Valuation Services recapped that wage growth continued to stall in February with real average hourly earnings for all employees increasing by 0.2 percent. Hourly wages in nonfarm payrolls went from $26.71 to $26.75, and average weekly earnings increased by $4.06 from $918.82 to $922.88.
“This marginal increase in wage growth continues the trend of relatively flat growth trending into 2018,” analysts said.
So how might consumers use that money to make a vehicle purchase and keep the engine running?
J.D. Power Valuation Services recapped that energy prices remained relatively flat in the months of February and March as global demand remained flat.
“Seasonal expectations counteracted any downward pressure on fuel prices from an excess supply of fuel the past month,” analysts said.
U.S. gas prices remained the same in March ($2.59 per gallon) as they were in February. The year-over-year increase in gas prices was approximately $0.26 per gallon (9.8 percent) higher than 2017.
Experts debate whether the current uptick in global demand for oil will taper off (which would lead to depressed prices), or if gas prices will marginally increase as demand remains constant,” analysts added.
Fuel-efficient vehicles going forward
Earlier this month, leaders of several automakers met with President Trump to discuss fuel-efficiency standards among an array of topics.
If gas prices continue to rise, perhaps demand for green vehicles will grow. For now, Edmunds indicated that sales of green vehicles (hybrids, plug-in hybrids and electric vehicles) in both Q1 as well as from January through April accounted for just 3.2 percent of new-model turns.
Jeremy Acevedo, manager of industry analysis at Edmunds, explained the conundrum OEMs now face.
“The automakers are finding themselves in a political quagmire of their own making. Companies are always going to push for what's best for their bottom line, and at this point, a compromise with California to maintain a single standard makes the best business sense,” said Acevedo, who also noted that 13 percent of all new vehicles sold in Q1 rolled over the curb at franchised dealerships in the Golden State.
“While it seems as though the automakers are somewhat unified in their approach, each company (went) into this meeting with their own agenda of how much they’re willing to concede...or not,” he continued.
“While Ford and GM have stated publicly they support continuous improvements in fuel economy, they’re unlikely to say no to laxer fuel efficiency rules given the flexibility it provides to play up to the strong consumer demand for trucks and SUVs,” Acevedo went on to say.
“But if the pendulum swings too far backward, there may be dissent from automakers that already have a robust green portfolio and are poised to be at a competitive advantage should stricter standards hold,” he added.