New car sales are on a very slow decline in the U.S., part of that decline is the appeal of used vehicles which are expected to hit a record of more than 41 million units in 2019, after setting a new record last year of 40.2 million.
What’s driving trend? Increased prices on new cars is making them less appealing, plus the interest rate hikes are pushing folks out of the new car market. However, they can certainly afford a used vehicle that comes with a much lower price tag that offsets the higher interest rates charged for used over new cars.
On top of all that, according to Edmunds.com analysts, the industry is expecting a record number of lease returns this year will give shoppers more options than ever in the used market.
“Typically sales of new and used vehicles follow the same pattern — if sales of new vehicles rise or fall, so do sales of used vehicles, and vice versa,” said Ivan Drury, Edmunds’ senior manager of industry analysis.
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“But now we’re seeing new vehicle sales fall while used rise, indicating the market has reached a flash point. New cars are getting so expensive that they’re out of reach for many car shoppers, but there are so many more affordable used vehicles coming off lease that the market is naturally shifting in that direction.”
Edmunds data shows that in 2013, the price gap between new and 3-year-old used vehicles was 56%, amounting to more than $11,000 in savings on average. In 2018, that number grew to 62%, totaling nearly $14,000 in savings on average.
The data also reveals that new car interest rates jumped by 17% in 2018, whereas rates for used vehicles have risen at a slower clip, with interest rates increasing by 9% in the same period. However, it’s not just the vehicles being sold on Craigslist or Auto Trader that are seeing this.
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Edmunds experts say certified pre-owned, or CPO vehicles, are reaping the benefits. Automakers are better educating car shoppers on the benefits of these programs. According to Google Trends data, relative search interest for CPO vehicles has steadily increased over the last five years.
“Many shoppers are unaware of the benefits of CPO vehicle programs, but given the tough financial conditions in the new market, it’s never been a better time to look into them,” said Drury.
“Between more affordable prices, the assurance of an automaker warranty, and lower interest rates, CPO vehicles give car shoppers a way to enjoy many of the benefits of a new car and minimize many of the risks of buying a used car.”
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CPO sales have risen every year since 2013, when they accounted for 2.1 million to last year’s total of 2.7 million units.