The Mercury News

As demand falters, car prices poised to fall

- By Tom Krisher Associated Press

DETROIT — While the U.S. inched its way out of the recession, consumers went car shopping in droves. As sales rebounded, the price of cars and trucks rose to record highs.

Now the price trend is set to reverse itself, partly because some buyers are unwilling or unable to pay the high prices and instead are opting for used cars.

Although overall industry sales are tracking last year’s record 17.5 million, many automakers are selling more cars to rental companies to maintain the momentum.

Sales to consumers are declining, so companies are ramping up incentives. Discounts in September hit a level not seen since automakers were desperate for sales during the financial crisis in late 2008.

“Inherently, you’re seeing a price war,” says John Mendel, executive vice president of Honda North America. “You’re already seeing the pricing pressure.”

Analysts say the deals will only get better during the next two years as millions of leased cars flood the used-car market and pull new-car prices down.

Auto prices have risen every year since the recession, hitting a record average of $31,825 in December 2015, according to J.D. Power.

The average price in September was $30,862, an all-time high for the month. Prices have remained elevated largely because buyers are still paying top dollar for red-hot segments such as crossovers and big SUVs, which cost more than sedans.

Even with slower car sales, times will remain good for the auto industry. Jeff Schuster, senior vice president for forecastin­g at the consulting firm LMC Automotive, predicts 2016 U.S. sales will fall a bit shy of last year’s record, with slight increases in 2017 and 2018. Mendel says that’s still good business, but higher incentives and lower prices could hurt automaker profits down the road.

Schuster says many automakers were using rental fleets and incentives to boost sales in hopes of avoiding headlines that could cause consumers to delay purchases and investors to balk at buying stock.

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