Auto tariffs may boost used car sales
Could a used car be in your future?
It may be a possibility for some car shoppers as they get squeezed by economic factors in coming months, according to a recent review of the auto industry in Detroit by Cox Automotive.
Although the economy remains strong, with low unemployment, a healthy stock market and solid consumer confidence, finding a new vehicle that fits a need for affordability could be tough, the analysts said.
Charlie Chesbrough, Cox Automotive senior economist, cited several issues that could push consumers to embrace used cars.
For example, a flood of off-lease vehicles is expected to peak next year at about 4.1 million, from 2.2 million in 2014, and automakers are no longer targeting the under-$20,000 vehicle segment, meaning new vehicles have been getting pricier. Wages are going up but not enough to offset other factors, such as the increase in gas prices.
For consumers looking for a deal, the options could be enticing. For example, the analysis noted that the average transaction price for a 2018 Toyota RAV4 stood at $31,615, but the estimated retail price on a 3-year-old RAV4 with frontwheel drive is $17,950, representing a $13,665 saving for the older vehicle.
In addition, the threat of a trade war and tariffs on imported vehicles could boost the used car market in the U.S., according to the review.
That could provide some relief to an industry bracing for the fallout from a potential trade war. Moody’s Investors Service has predicted that the auto industry would feel widespread pain should the Trump administration follow through on threats to impose 25 percent tariffs on imported vehicles and auto parts.
Chesbrough noted that making predictions in the current environment is tough but tariffs affecting such a large part of the market would affect affordability.
“We’re going to see prices go up,” he said.
For the year, Cox is forecasting a stillstrong sales environment but the firm notes that the auto market remains in its post-peak period. Earlier this year, Cox forecast a seasonally adjusted annual rate of 16.8 million vehicles for the year, which represents an increase of 100,000 from earlier figures. Cox says the number will be at 16.4 million in 2019 and 16.5 million in 2020. In 2016, the number hit 17.5 million. The coming headwinds are expected to affect the economy, but timing of a downturn is uncertain, Chesbrough said.