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Is the Used Car Industry in Trouble, Investopedia

Is the Used Car Industry in Trouble?

According to NADA Used Car Guide, prices for used cars in February fell by 1.6% as compared to the previous month, going against forecasts (Analysts had expected a 1% bump in car prices for that month). This might not seem like a lot, but it is, as ZeroHedge put it, the worst February decline in twenty years.

The decline could be cause for concern as low prices make used cars more attractive as compared to fresh cars and affect overall sales at automakers. Fresh vehicle sales dropped by 1.1% this past month. (See also: Car Shopping: Fresh Or Used?)

NADA Used Car Guide attributes the price decline to three factors.

Very first , car manufacturers put in place several incentives for consumers to spend more on fresh cars. NADA estimates that car manufacturers raised spending by approximately 18% as compared to the previous month to put in place incentives for consumers to purchase cars. Average spending on incentives by automakers rose to $Trio,594 in February from $Trio,043 in January. (See also: The Finish Guide To Buying A Used Car).

General Motors Company (GM) accounted for the highest amount spent among big automakers with an average spend of $Five,125 per unit. At ninety one days, the Detroit-based car manufacturer also had the highest sales inventory period. Deliveries at GM enlargened by Four.1%, with a 17.1% rise in its GMC truck brand. On the other arm, Toyota Motor Company (TMC), which spent $Two,267 per unit as marketing incentives recorded an inventory of sixty seven days. Sales at the Japanese automaker declined by 7.2%.

2nd, sales of used vehicles rose during this period. According to the guide, auction sales for cars three years or older rose by 6%. Sales for cars that are eight years or older rose by 1%. Analysts at Deutsche Bank commented on the price decline for used cars and said that leasing institutions could pull back as loan volumes increase due to enhanced sales of used cars. The end result could be a tightening of credit. According to a WSJ report, leasing divisions at car makers could face problems as used car values become more attractive in pricing. The report quotes an analyst at research rigid Jefferies as telling that the big three Japanese automakers – Toyota, Honda Motor Company (HMC), and Nissan Motor Holdings Ltd (NSANY) – which have approximately 30% of their sales tied up in used car leases, could be most badly-hit by the trend.

Third, the rock hard states that a delay in tax refunds could also be a culprit for the low used car prices. “Federal tax refunds—which historically support request and thus pricing through a given very first quarter—haven’t been distributed quickly compared to past years,” authors of the guide wrote. However, the situation is expected to correct itself in March after the tax refunds are disbursed. NADA Used Car Guide predicts that vehicle prices will increase by Two.5% for vehicles that are up to eight years in age and subsequently will decline by 1% in April.

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