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Used Car Sales to Keep Dealers Afloat During New Vehicle Sales Slide

Off-lease vehicles becoming affordable alternative to new.

by on Jun.29, 2017

New data shows that U.S. auto dealers are expected to handle the downturn in new car sales just fine by selling more used cars.

Despite a drop in the sales of new vehicles during the first half of 2017, American car dealerships are still expected to sell more cars and trucks this year thanks to robust demand for used vehicles, which indicates the auto industry is nowhere near slipping into a recession.

Jonathan Smoke, chief economist for Cox Automotive, which manages online publications such as Kelley Blue Book and Auto Trader as well as used-auction centers, said data already indicates that the shift is well underway. “Dealers are selling more vehicles, but the mix is changing and shifting from new to used.”

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Thanks to strong sales since the recession, the supply of appealing used vehicles has increased substantially helping dealers build their inventories of used vehicles, said Smoke, who added dealers are also willing to pay more for used vehicles to insure they have an adequate supply of used vehicles.

Smoke added a significant number of off-lease vehicles are returning to the market as low mileage, relatively-new used vehicles.

(Most Americans can’t afford a new vehicle. Click Here for the story.)

According to Cox Automotive data, 3.6 million lease vehicles will return to the market in 2017, up from 3 million in 2016. These off-lease vehicles are rapidly becoming an affordable, appealing alternative to new vehicles and more are on the way. By 2020, 4.6 million off-lease vehicles will return to the market.

“Overall, despite slowing new-vehicle sales, we think the automotive market is healthy,” added Smoke. “Sales of approximately 17.1 million will make 2017 among the best years the industry has ever recorded. And the mix is strong, with profitable SUVs and crossovers dominating the market.”

Smoke noted that the default-rate on car loans is still very low. Less than 1% of car loans wind up in default.

(Click Here to see why GM is the latest to cut its 2017 industry sales forecast.)

Rebecca Lindland, executive analyst for Kelley Blue Book, says that millennial buyers under the age of 40 now have a major influence on vehicle purchases, accounting for 29% of all vehicles sold in the U.S. For a number of reasons, these millennial buyers are much more likely to purchase a used vehicle.

“Affordability is a big issue for millennial buyers,” added Lindland, who noted young buyers shop for vehicles on line.”

Overall, the sales of new vehicles in the U.S. are still relatively strong but have slipped but a clearly passed their 2o16 peak of 17.5 million vehicles, said Charles Chesbrough, Cox Automotive’s senior director of industry insights.

(New car sales expected to continue sliding. Click Here for the story.)

“It’s hard to say the industry is near collapse, barring a recession or some kind of financial event,” he added.

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