Bargains to be had on new cars
Sales are leveling off so inventories are high
Coming off what may turn out to be its best back-to-back sales years ever, the U.S. automotive business appears to be easing off the accelerator a bit heading into 2017.
For consumers, that means there may be bargains to be found.
“The bottom line is sales (rates) are still pretty high, but they are plateauing and it is taking more effort in terms of promotion and incentives to keep sales higher. And we expect that will be more of the same next year,” said Michele Krebs, senior analyst for automotive website Autotrader.
With sales leveling off, inventories are rising. “When inventories rise, automakers put more incentives on,” Krebs said. “Incentives are the highest they have been in a long time.”
For consumers, some of the best deals to be found are on cars rather than SUVs, crossovers and pickup trucks, said Jim Tolkan, president of the Automobile Dealers Association of Mega Milwaukee.
“There are certain cars that are absolute bargains,” Tolkan said — especially compact, subcompact and midsize cars.
“There’s been a huge shift —
even significantly greater than last year — from car sales to pickup trucks and even more so, crossover vehicles and SUVs,” Tolkan said.
Nationally, new vehicle sales are about 70% light-duty trucks and crossovers — “everything from a (Toyota) RAV4 to a Kia Soul to a GMC Yukon,” Tolkan said — and about 30% cars. The industry set a new-vehicle sales record last year. This year, sales are on track either for a new record or a near-miss.
Beyond the growth in sales of SUVs and pickups, an overall inventory shift is forecast for 2017 as thousands of leases are up. That could mean some decent deals for used-car shoppers in 2017.
“When all those cars are coming back from leases, they have to go someplace,” Tolkan said. “That will be a benefit to a true used-car customer.”
Frank Boucher, president of the Boucher Automotive Group, which has locations across southern Wisconsin, says leasing can make up as much as 50% of his business.
Jesse Toprak, CEO of automotive website carhub.com, points out that cars coming off leases are often good deals.
“Somebody else took the initial depreciation on the car, and you can still get a car with a good amount of warranty,” Toprak said.
Interest rates are rising, right along with the stock market, but dealers don’t think they will affect auto loans much.
“If it clicks up a half a point, that’s not a big move,” said Jim Griffin, president of the Griffin Automotive Group of dealerships in Milwaukee and Waukesha, Wis. “I’ve been in the business when they were 18%.”
With an anticipated rate increase that is relatively small, auto manufacturers will likely step in and subsidize loan programs to keep interest rates near zero.
Toprak has researched the relationship between the stock market and automotive business and has found that the auto market tends to move in tandem with stocks.
“The correlation between the new vehicle sales rate and the Dow Jones industrial average for the last decade is nearly 80%,” Toprak said. “You see them more or less moving hand-in-hand. As long as whatever is happening in the economy, including interest rates, is not impacting the stock market dramatically negatively, car markets should also be able to hold strong.”
A labor market that is nearly at full employment also bodes well for the car market going into 2017.
“I think the employment picture and the way people feel about their employment is very positive,” Sommer said.