With April’s new car sales expected to drop about 3 percent over last year, new and used vehicle inventories continue to expand contributing to a buyer’s market with generous incentives and dealers anxious to move vehicles. J.D. Power estimates that the average time a vehicle sits on a lot before being sold has risen to 70 days. That’s also reflected in the industry’s measure of days’ supply, the time it would take to sell all the vehicles on the ground at the current sales rate. It now stands at 73 days, higher than the 60-days’ supply considered normal.
The annual sales rate is expected to recede from the record levels of the past three years, according to Tom Web, chief economist for Cox Automotive, parent of Kelley Blue Book. “New-vehicle sales probably should be under that 17-million rate shortly,” Webb told Automotive News. “To keep it above sort of implies you’re forcing the market higher than it wants to go. You’re doing incentives or something else to push product.”
Incentives have grown to represent about 10 percent of the average vehicle’s sticker, above the usual rate of 8.5 percent. Either incentives will continue to run at a torrid pace or manufacturers will back down and cut production schedules to bring supply more in line with vehicle demand.
But until then, there are plenty of generous rebates on new 2017 and left over 2016 models. With a new 2018 Expedition in the wings, Ford is offering rebates of up to $7,000 on both the standard and extended wheelbase EL models. Its Escape compact crossover SUV carries incentives of up to $5,000, while the Explorer, which also gets a facelift for ’18, has $3,000 on it. Fusion sedans are eligible for over $4,000 in discounts. On 2016 models, both the Edge and Flex offer rebates ranging up to $4,000.
CPO sales hot
In contrast to the building supply of new vehicles, buyers are still taking advantage of the manufacturers’ Certified Pre-Owned (CPO) programs. While there’s a large number of off-lease vehicles beginning to hit the market, these units have yet to have a huge impact in depressing sales activity. But some see the rising supply of new vehicles with big incentives as a bigger factor in softening used vehicle values. That slight downturn in used vehicle values is reflected in the Manheim Used Vehicle Value Index, which has declined five out of the past six months, though generally values are still higher than last year. So far, a predicted collapse of used car prices from off-lease vehicles hasn’t materialized.
According to a survey by Automotive News, used vehicle activity is actually up 6.6 percent this year, hitting $57.79 billion at the 100 largest dealer groups. AutoNation, one of the largest dealer chains in the country, is actually reviving its AutoNation USA name for a number of used vehicle stores it plans to open through 2017. It hopes to have 8 stores running by year’s end and plans for 20 more in 2018.
Meanwhile, Kia is touting that its CPO program, which includes 5-year-old and newer vehicles with less than 60,000 miles on them, is off to a strong start this year with nearly 20,000 units retailed during the first quarter. This strongest showing ever represents a 17.3-percent increase in CPO sales over the first quarter of last year.
Fueling the success of CPO sales is the willingness of Millennials, who are entering the car market for the first time, to consider these offerings. Autotrader, a sister site to KBB.com, recently completed a study that showed 74 percent of Millennials willing to pay more for a CPO vehicle versus a non-CPO vehicle. It’s a 12-point gap over the 62 percent of older drivers willing to pay more for a certified used car. The younger generation also puts a higher premium on these cars, some $3,800 on average in value over a non-certified vehicle.
“Millennials gravitate toward used cars because that’s where they can afford them,” said Michelle Krebs, an analyst with Autotrader. “I think it has to do with many of them not having shopped for cars before. I think it’s a level of peace of mind with getting a certified pre-owned that is backed by the manufacturer.” The Autotrader study also showed that CPO buyers have more loyalty, with 69 percent saying they would likely buy from the same dealership again.
Subscribe to Hyundai’s Ioniq EV
Following up on its announcement earlier this year, Hyundai has opened up subscriptions on its newly introduced 2017 Ioniq Electric. Offered in California, the program allows customers to choose one of three fixed payment plans for the electric over a 3-year term. Base models are being offered for $275 per month, Limited models at $305 and the flagship Limited with the Ultimate Package is $365 monthly. All prices are plus California sales tax. While the plan requires a $2,500 down payment, that money is refunded through a state rebate.
The Ioniq Unlimited+ program as it’s called has no annual mileage caps and participants are reimbursed for electricity costs during the first 50,000 miles. The car’s Blue Link system monitors the recharging and automatically reimburses the owners by applying the credit towards the following month’s charges. All service, maintenance and wear items are also covered during the vehicle’s first 50,000 miles.
For those looking to make a traditional purchase, the Ioniq Electric starts at $29,500, the Limited is $32,500 and the Limited with Ultimate Package is priced at $36,000. Prices exclude $835 delivery and do not reflect the federal $7,500 tax credit that can be applied after the purchase.
Interest rate drop
After trending upwards by 5 basis points since the Federal Reserve hiked interest rates by a quarter-point, auto loan rates have settled back down to where they were at the beginning of the year. According to Bankrate.com, the average 5-year loan is back down to 4.35 percent after spiking upward to 4.41 percent two weeks ago. Four-year loans are averaging 4.33 percent, down from 4.38.
Used vehicle loans typically are higher than new car loans. The 3-year average loan is currently running at 4.84 percent, down from the earlier peak in April of 4.9 percent. Looking to leverage used car financing as a promotional tool for its Certified Pre-Owned program, Subaru is offering 3-year loans for just 0.99 percent. This deal expires on May 1.
The rundown
Check out the This Week in Car Buying Podcast here.
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