New-car industry headwinds expected to grow in 2018

CARY, N.C. - 

Despite a decline in new-car sales projected for a second straight year, analysts say the industry is both healthy and entered the new year with a growing U.S. economy.

This year, Cox Automotive senior economist and senior director of industry insights Charlie Chesbrough suggests that the new-vehicle market is following the overall trajectory of the U.S. economy, but he does have concerns that industry headwinds are growing.

“I think it would be very difficult for the market to finish as strong in 2018 as it did this year. Cox Automotive is expecting a bit of a pullback in the market, with a forecast right now of about 16.7 million.That’s our outlook and guidance for 2018 because we do see headwinds starting to rise,” he explained in a media call in January.

Chesbrough points out that when it comes to off-lease vehicles, in particular, car shoppers will a have a lot to choose from this year.

“We do have some concerns that the leasing strategies of the last few years are going to start to come back to dealers and provide product alternatives to new buyers that is going to be really attractive to them,” Chesbrough said. “The number of CUVs coming back and pick-up trucks coming back are going to be significantly higher than they have been over the last couple years, and that’s going to peel away a few new buyers who would be interested in those vehicles.”

As far as specifics, there’s a record number of lease returns expected this year. In 2015, 4 million vehicles were leased, up 12 percent compared to 2014, according to Edmunds.

Last year, Edmunds found that car shoppers who purchased a 3-year-old used-vehicle over a new vehicle could save 34.7 percent more than they could in 2010.

Chesbrough also discussed interest rates as a headwind, pointing out that “interest rates are going up. We’ve already seen the federal reserve raise interest rates 25 points in December, and those probably haven't even hit the vehicle market just yet. 

“The expectation is that as we go through 2018, the fed is going to continue to raise interest rates possibly another 75 or 100 basis points. That’s real money to consumers, not only for their vehicle payment cost, but all across all of their spending, their credit cards, their home loans, anything where they have to borrow money those costs are going to be going up,” Chesbrough said.

“And for the manufacturers and dealers themselves, the cost to build vehicles, ship vehicles, finance vehicles for their floor plans — all of that is going to be one of the headwinds that we see rising in 2018,” he continued.

Like Chesbrough, Cox Automotive's Jonathan Smoke said this year, conditions that had been tailwinds have started to become headwinds.

“We’ve seen a gradual movement up in interest rates, that’s likely to continue. We’ve seen a movement up in lease payments because of residuals coming down, and that’s likely to continue to be the case, and we’re seeing tighter credit. That’s the key reason why total sales may be up, or equivalent to this year but a continuation of a shift into used," he explained in AIADA's December AutoTalk webinar.

“Effectively, the buyer of a new vehicle just a few years ago may be pushed into the used market simply because of the movement in the payment and what they can qualify for on the credit side,” he said. 


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