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Inflated New Car Inventory Could Be Killing Used Car Prices

As inventories rise and demand slips from an all-time peak, automakers are increasingly under pressure to slap incentives on vehicles to sustain sales and justify high vehicle production. That, in turn, causes dealers to further lower used-vehicle prices to keep them attractive, potentially putting more pressure on automakers to offer additional incentives on new cars.Analysts have long suspected that high volumes of lease turn-ins would kill used car prices, but that’s not really the case right now, according to Automotive News. The publication claims it’s a surplus in new vehicles—and the associated incentives aimed to reduce that surplus—that’s hurting used car pricing more than anything, referencing chief economist of Cox Automotive Tom Webb, who said:

The fact that dealers have 4-plus million new vehicles in stock is what puts pressure on used-vehicle values… Obviously, that’s too many.

As Automotive News points out, that “4-plus million” is actually 4.19 million vehicles worth of new-car inventory as of the start of April, which the Automotive News Data center claims are the highest at the start of any month since 2004.

Automotive News spoke with the senior vice president of automotive valuation and analytics at Black Book, who talked about the “vicious cycle” that incentives can start:

As inventories rise and demand slips from an all-time peak, automakers are increasingly under pressure to slap incentives on vehicles to sustain sales and justify high vehicle production. That, in turn, causes dealers to further lower used-vehicle prices to keep them attractive, potentially putting more pressure on automakers to offer additional incentives on new cars.

It makes sense: heavy incentives on new vehicles can make people think twice about buying a two-year-old car, especially if the former doesn’t cost much more.

And indeed, that’s what Automotive News suspects is happening right now, as it mentions that the NADA Used Car Guide’s Used Vehicle Price Index has dropped to its lowest value since 2010, and the Manheim Used Vehicle Value Index has gone down for the 5th time in the past six months.

So if you’re looking for a slightly used car, now might be the time to buy one. Or you can just take the cash on the hood of the new car like everyone else is doing.

Source :

David Tracy

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