In spite of lower new vehicle sales in the first two months of the year and snowstorms driving down sales in March, NADA chief economist Patrick Manzi is sticking with his forecast of 16.7 million this year. As anticipated, that is quite a bit below last year’s total of 17.2 million.
Although unemployment remains low at 4.1 percent, wages have remained stagnant, which makes consumers reluctant to make major purchases.
But average transaction prices are likely to rise “because of consumer preferences for light trucks and vehicles with more high-end advanced safety features,” Manzi said. Through February, light trucks (including SUVs and CUVs) accounted for nearly 68 percent of new vehicles sold nationally. Washington area buyers have traditionally preferred cars, but that trend has started to change lately as more consumers move to crossovers.
On the used-car front, the increase in off-lease volumes will spur growth in the certified pre-owned (CPO) market, Manzi said. “2018 could very well be a record year for CPO sales.”
The influx of off-lease vehicles will put pressure on new-vehicle sales because the increased supply will drive down used-vehicle prices.
“Consumers will see a widening price difference between a new vehicle and a similarly equipped used or CPO vehicle and will consider buying used,” said Manzi.
Another outside factor affecting auto sales this year besides wage growth is an anticipated rise in interest rates. Manzi said rates will likely be increased three or four times this year with the federal funds rate above 2 percent. That will add pressure to already increasing vehicle transaction prices and auto loan terms.
That’s where tax reform will come in. “Increased take-home pay from the tax reform legislation passed at the end of 2017 is likely to help offset some of the increase in monthly payments from higher rates,” Manzi said. “Buyers with good credit and high incomes are unlikely to be affected by rising interest rates.”Download Bulletin PDF