Vehicle manufacturers will sell 17 million new vehicles in 2019, which would represent only a 1.3% decline from a year that recorded a third consecutive year of more than 17 million new vehicles sold, according to Oliver Strauss, chief economist for TrueCar’s ALG.
While small, a dip in volume does have an adverse effect in supply available in the used market down the line when these vehicles return to the used market. What may have a bigger effect on the used car market are two other factors that ALG reported: a rise in average transaction price and incentive per unit spending.
ALG reported a projected 2% rise in average transaction price and a 3.1% increase in incentive spend.
Higher transaction prices generally lead to higher used car values, but alternatively higher incentive spending translates into lower used car values as the amount that companies discount their vehicles has a direct effect on their values when they reach the used market.
When incentive spending outpaces average transaction prices, this typically means that used values will suffer.
“If the economy and new car sales have reached a peak in 2019, manufacturers may feel the need to further incentive new cars to get them sold,” said Tom Kontos, EVP and chief economist, ADESA Analytical Services in an interview with Vehicle Remarketing. “No one wants to lose market share, so they get more aggressive with incentives. We’ll feel that in the used market really quickly. Used car prices usually fall congruent with the discounts on new cars.”
The projected increase in incentive spend per unit from ALG isn’t that large, the 3.1% increase represents a change from the average incentive spend of $3,740 in 2018 to $3,857 projected for 2019. But, it may be a signal of what’s to come farther down the line, as sales plateau or decline, higher incentives may be seen as the way to hold on to more sales.
The vehicles from the OEMs more aggressively raising incentives may see their values suffer in their OEM’s attempt to maintain their market share.