Feast or famine. This is a cycle that could be used to describe the American auto industry. First there is high demand for Detroit’s output, usually as the country is recovering from an economic downturn (like the recent recession). The pent-up demand caused by millions of deferred purchases keeps the industry humming for several years. At the first signs of flagging demand, the automakers follow a well-worn path of “priming the pump”. Because automotive manufacturing plants can’t be run precisely to respond to sudden changes in the marketplace, they first offer larger and larger rebates (usually “targeted” to a certain model or build combination) to move the metal.
When that push runs out of steam, the automakers pressure their captive finance companies for easier credit and more generous leasing offers. The short term advantage for the automakers are higher sales. But there is a dark side to that sales push. A glut of late model used cars that have started to enter back into the marketplace.
This is part of the cycle that has played out repeatedly over the years. With automakers like General Motors offering 24-month leases on some of its volume leaders like the Chevrolet Cruze and Malibu sedans over the last few years, dealers are now caught in the middle as new vehicle sales fall.
For you the consumer, it’s a buyer’s market. The industry estimates that over the next several years, that upto 12 million used vehicles will come off lease and enter into the used vehicle market. The laws of supply and demand mean that more vehicles will lower the average sales price – meaning that you will be able to purchase a newer, lower mileage used car than before. Unlike past cycles, there are a few flies in the ointment. The automaker’s Certified Used Car programs will absorb some of this surplus – meaning that the “cream of the crop” will still bring above market prices. However, clean, low mileage used cars will put pressure on sales of the new ones.
Add into the mix the changing values of young adults waiting later to get their driver’s licenses and new vehicle purchases (if they buy one at all) and the rise in popularity of alternative mobility options like Uber, Lyft and Maven – and you have an industry in turmoil.
While all of the changing technology electric vehicles, self driving vehicles and the plateau of individual vehicle ownership, there is a window of time over the next few years where used vehicles will be the most affordable. I say this with one major caveat: lower prices for late model used cars will most likely reduce the value of the vehicle you may be trading in. So, do your research, be sure to test drive the top three vehicles that interests you, and make your best deal. The market is on your side.