Prices for used cars and trucks could fall 15 to 20 percent as dealerships get more and more off-lease vehicles, creating “a big problem for the new-vehicle segment,” auto analyst John Murphy said Tuesday.
A big drop in used-vehicle prices will prompt some consumers to buy used instead of new. That’s one reason new-vehicle sales could start declining in 2018.
Dealerships will have 14.5 million used vehicles on their lots in 2018, 22 percent more than the 11.9 million they had in 2015. About 3.7 million vehicles are expected to come off leases in 2018, a 61 percent jump from three years earlier.
As all these cars come back, they’re expecting there to be significant pressure on used-vehicle pricing.
The glut of off-lease vehicles has been foreseen for several years by auto auctions and others in the re-marketing industry, but the issue has drawn increased attention as the days of reckoning draw closer.
The severity of the upcoming downturn — whenever it begins — will depend on how much automakers are willing to keep subsidizing sales with heavy incentives. Automakers sold more than 17.5 million vehicles in 2016, which was the seventh consecutive year of growth for the industry.
It’s hard to predict the industry’s performance in the coming years with great certainty at the moment because it’s still unclear what tax and tariff policies President Donald Trump’s administration will enact.
Some dealer groups are fighting proposals to levy a border-adjustment tax of as much as 20 percent on imported vehicles and parts.
It would make vehicles cost about 14 percent more on average, forcing automakers, dealers and suppliers to absorb some of the increase so that consumers would still be able to afford them.
A proposed drop in the corporate tax rate could help automakers and dealership groups mostly offset the hit to earnings that a border-adjustment tax would cause.