Rising inventories on new cars and trucks are threatening the auto industry’s growing sales.
For years, experts have been warning automakers about the return of off-lease vehicles flooding the market. The auto industry has taken their warning with some indiscretion, but Wall Street analysts have recently picked up on the trend of downward prices. It is predicted that the weakening used-vehicle prices could end the increasing sales for new and used vehicles.
It is a growing concern that the record-high lease returns will wreak havoc on used car prices, creating a greater supply than demand. But some experts say that the wave of lease returns is not causing the drop in value of used cars. On the contrary, it is the excess new-vehicle volumes and rising incentives that are driving down used vehicle prices.
On April 1, the U.S. new-vehicle inventory was at 4.19 million vehicles, the highest it’s been since 2004. Contributing to the surplus of new vehicles is the lack of movement on dealer lots. The average new car sits on a lot for 73 days compared to 65 days last year. Combining the heavy inventory and sluggish movement of new cars, automakers have resorted to throwing incentives at new cars to sustain sales and justify over-production. As a result, dealers are lowering the prices on used cars to retain the attraction. This pressures dealers to offer additional incentives on new cars to keep inventory turning, and it becomes a vicious cycle.
With the average incentive topping over 10 percent of the of manufacturers suggested retail price (MSRP), analysts are worried that it is well above a healthy rate of 8.5 percent. If automakers cut back on incentive spending to 8.5 percent, how will it affect used-vehicle prices?
Read the full article originally published by Automotive News: http://bit.ly/2pXfn0F
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