After several years of robust growth following the Great Recession, new auto sales declined 4.7 percent in April, following a 1.6 percent decline in March. The drop occurred despite manufacturers spending an average of $3,814 per car sold in the first part of April on incentives for buyers and auto dealers, according to a study by J.D. Power and LMC Automotive.
For total industry sales to reach a peak and start declining isn’t a surprise to anyone, and it could be great for car buyers moving forward. Even carmakers don’t seem to be terribly concerned with the decline in the number of total vehicles sold, as they’re making more on each car they sell right now because their product mix is more heavily weighted to highly profitable SUVs and pickups.
The last huge drop in car sales occurred at the brink of the last recession, but this one isn’t expected to be as precipitous as the previous decline, as the overall economy is healthy, with low inflation, interest rates, and unemployment.
There are lots of trends at play. Let’s look at how you can take advantage of each of them.
Falling New Car Sales
Carmakers have fought tooth and nail for market share over the last several years, and they’re not likely to let their percentage of the market slide. Look for incentives for car buyers and leasing customers to continue at their blistering pace, though they’ll be laser-focused on specific models and trim levels. You likely will not see any reductions in sticker price, as manufacturers traditionally battle slowing sales with incentives.
Sales of small and midsize cars have taken the biggest hits, so you can expect to see excellent new car financing deals and lease incentives on them. Also, look for outgoing models – manufacturers are helping dealers clear their lots before the updated versions come out. If you happen to find a car that is the nexus of both, such as the 2017 Hyundai Sonata, the deals can be amazing.
SUV and pickup sales continue to show strength, so the number of deals available on them is expected to be less than the pace of incentives on small and midsize cars.
Lately, we’ve seen more manufacturers targeting incentives to specific trim levels, so be sure to read the fine print on any advertised special to make sure that you’re getting the best deal. For example, you can probably get a decent incentive on a 2017 Dodge Charger or Ford F-150 full-size pickup, but don’t expect one on a Charger Hellcat or Ford F-150 Raptor.
Not all incentives are advertised, with many going straight from the manufacturer to the dealer as encouragement to make better deals with consumers. By using our Best Price Program, you’ll get offers from several local dealers with guaranteed savings. Since the participating dealers are competing with others, most of the offers will reflect any money that the dealers are getting from manufacturers.
What’s Happening With Interest Rates?
The Federal Reserve has slowly been increasing key interest rates in order to keep inflation in check. Those increases aren’t liable to have much of an effect on new car loan interest rates, at least for customers with excellent credit, as market forces will keep them low. With less demand for new cars comes less demand for vehicle loans, so some lenders will be as hungry as car dealers.
It’s not unusual for buyers to see cash back offers, low-interest financing deals, or zero-percent financing options. It’s important to run the numbers yourself (don’t let the dealer do it), so that you can find the right deal for your situation. As always, it’s best to have a preapproved financing deal from a bank or credit union before you go to the dealer. By having a deal in your pocket, the dealer will be forced to meet or beat it.
Falling Used Car Prices
One of the factors in declining new car sales is the ready supply of high-quality, low-mileage cars coming off of their leases. Leasing rates have taken off in the last several years and now account for nearly 30 percent of the new car market.
With such a huge supply of cars returning to dealerships, prices of pre-owned cars are declining, and analysts at Morgan Stanley expect them to drop by 20 percent over the next four years. That’s the most likely scenario, but their most pessimistic estimate has them plummeting by 50 percent.
Not only do these declining prices for used cars give buyers some great money-saving opportunities, but they also limit what manufacturers can charge for the new cars that have to compete with them. When you’re negotiating the price of a new car, don’t hesitate to bring the idea of buying a certified used car into the discussion to put more pressure on the sales representative.
Ironically, declining used car prices could make buying a new car less affordable. Because the value of your trade-in is likely to be less, the difference between what you get from it and the price of the new car is likely to be greater.
Less Attractive Lease Deals
There are several factors at work that can upend the increasing popularity of leasing.
First, let’s remember how leasing works: You pay for the depreciation that occurs on the vehicle over the term of the lease, plus fees and interest. Declining used car values reduce the residual value of new vehicles available for lease, creating more depreciation that will have to be paid for by the lessee. Unless the lease is subsidized by the manufacturer, paying more for depreciation means that the monthly payments will go up.
Some manufacturers are already feeling the pressure from the oversupply of high-quality off-lease vehicles and are starting to reduce their lease incentives in an effort to bring the supply down. That means less attractive lease deals are likely to be offered by those manufacturers.
More Buying Tools From U.S. News & World Report
An excellent deal isn’t a really a deal unless you’re buying a car, truck, or SUV that meets your needs and wants. You’ll want to explore our new car rankings, where you can compare vehicles by price, efficiency, safety ratings, and more.
For the latest in car buying advice, follow the expert journalists and researchers of U.S. News & World Report on Facebook and Twitter.[“Source-usnews”]