2017-2018 US Used Car Market – What To Expect
Planning to sell used cars in 2017 and into 2018? Then you’ve come to the right page. This will try to analyze what you can expect next year. Will it be a boom or a bust?
For our analysis, we’re going to look at different factors that can have a significant impact not only on purchasing power and sales of these used vehicles.
Any person who’s thinking of doing a business should pay attention to politics. This is because the potential for success is affected by policies, rules, and regulations set by the state and federal governments.
The deep ties between politics and the auto industry have been around for many years. During the 2009 recession, big auto manufacturers were saved from bankruptcy when the government decided to bail them out. It’s also not uncommon for governments to extend loans to these companies. Auto players also have their own lobbyists who push their agenda in the legislative department.
Sale of electric and fuel-efficient cars rose over the last few years due to tax incentives provided by the government while the lack of clear regulations about ride sharing and self-driving vehicles are preventing these technologies from taking off completely.
With the win of Donald Trump, auto makers are currently bracing for new changes in the industry. One of the biggest shake-ups is the selection of Oklahoma attorney general Scott Pruitt. Pruitt is expected to head the Environmental Protection Agency (EPA), which is in charge of regulating the emission of carbon and use of fossil fuels by vehicles, among others.
Pruitt is a known climate change skeptic, which poses a dilemma for the United States being one of the signatories of the Climate Change Pact in Paris. Pundits and some auto makers are already expecting Pruitt to prefer fossil fuels while the government may reduce subsidies on fuel-efficient and electric vehicles.
What does this mean for the used car market? The demand for pickup trucks, which are considered as less efficient, will go up.
President-elect Trump has also always been clear of penalizing companies that send jobs, especially manufacturing, and removing the country from agreements like North American Free Trade Agreement (NAFTA) with Mexico and Canada.
The agreement has allowed various US businesses such as auto makers to set up plants and factories in Mexico where labor is easy to find and cheap. Moreover, because of its nearness to the United States, the setup allows these companies to meet surge of car demand more quickly and easily.
If Trump decides to leave NAFTA and slaps 35 percent of tariff on manufacturers that send their jobs offshore, including Mexico, auto makers may be forced to change car models, reduce importation, or increase car prices.
What does this mean for the used car market? It’s possible there will be a dramatic increase of used cars in the market as models can easily become “outdated.”
Based on the most recent data provided by the Bureau of Labor Statistics (BLS), unemployment rate dropped to 4.6 percent, which is around 0.03 percent lower than the previous report, in November 2016. Non-farm payroll employment also went up by almost 180,000.
These figures, however, show there’s not much development in terms of employment when compared to data between August 2015 and October 2016. The employment growth has a monthly average of 180,000, which is lower than almost 230,000 of 2015.
On a macro level, the country’s economy is expected to be good. The GDP rate may be between 2 and 3 percent, which is higher than that of 2016 but about the same for 2015. Donald Trump wants to bring the numbers way up at 4 percent, which is something that bothers economists as it may trigger a bust.
Unemployment rate may decline to 4.5 percent within the next two years, which is higher than 4.7 percent. Another possible factor for the increase is the return of manufacturing jobs to the country, although workers should be warned: companies with offshore plants may push for a renegotiation with the government.
For this year, job growth has been robust in business and service sector, as well as healthcare. In 2017, the increase will be mostly in food and retail with low pay.
What does this mean for the used car market? Based on this information, we can deduce that there will be a possible high demand for vehicles, but if the increase in employment is more significant among low-wage workers, more may prefer used instead of new car models.
Interest Rate Hike
The US Federal Reserve recently announced an interest rate hike of 0.25%, the second time since 2008 and the first since December 2015.
The increase is due to a more robust economy and higher employment, which, in layman’s terms, means more people can now afford to pay for loans, debts, and consumer goods.
Increasing the interest rate is important to maintain a healthy economy, but it can also have impact on consumers, including those who are planning to buy vehicles. For one, people with credit debt may expect to save less and pay more. Although a hike in Fed interest can also boost savings interest rate, this may be offset by equally huge debts. Moreover, this may drive consumer spending down.
What does this mean for the used car market? It can go either way. On one hand, the need to buy a car without spending a lot can make used vehicles attractive. However, there may be a preference for cars that won’t cost much to drive and maintain, which means there may be less demand for luxury cars.
For the past few years, more Americans are leasing than owning vehicles. This is basically driven by the high prices of new models. In fact, the price difference can be as much as $100.
Leasing businesses, meanwhile, are encouraged by lower interest rates for their vehicle loans (note: auto loans are usually shielded from the immediate impact of changes in Fed interest rates).
What does this mean for the used car market? There’s good news: many of the leased vehicles will be coming off lease in 2017. As dealers, you now have access to vehicles no more than 5 years old at a cheaper price. You can then pass on the savings to your buyers or create attractive offers top beat competition.
Used Car Sales
The used car market performed well in 2016. During the first quarter of the year, total sales reached more than 10 million cars, which is slightly lower than in the same period of 2012 but higher than the other years from 2011 to 2016.
We haven’t found a comprehensive 2017 market report for the US car market, but this post may help shed light.
The average length of an auto loan is 5.5 years, which is initially good since it gives borrowers enough time to pay. However, this also means they’re spending more on interest. Moreover, per analyst perspective, cars retain excellent market value for its first 5 years. This implies at least half a year of the auto loan, borrowers are on the losing end.
Second, the rate of auto loans for new vehicles was strong in 2016. This can mean in 2017, we can expect much younger cars in the market. Considering more people are now opting for car models that are a year or less, you can enjoy a bigger and faster return on your investment.
How to Win It Big in 2017
As a business, you are driven by profit and cash flow to sustain yourself. In general, next year’s outlook in your industry is good, as there are a lot of opportunities for growth and income. However, the next 12 months aren’t the best times to be complacent. Rather, as early as now, you should think of a strategy to win – and win big.
One of the practical steps you can take is to participate in auto auctions.
Participating in auto auctions allows you to:
• Access to a huge supply of used cars. Economic principles state the higher the demand, the higher the price. The higher the supply, the lower the cost. By having more cars in inventory, you can look forward to a lower price point or at least your initial bid price.
Speaking of supply, in recent years, more newer models are available for auctions. This can be caused by many factors including the fact more vehicles are already off the lease and are returned to the dealers’ lot. In turn, used cars have become more attractive to US consumers.
• Spend less on auctioned vehicles. Used vehicles are already cheap, but they become a bargain once you join auctions. This happens for a lot of reasons. One, used cars come from various sources:
o Government – State and federal government agencies invest in different types of vehicles to perform their basic functions or services. However, at some point, they have to exchange these used vehicles for new ones. This creates a dilemma for the government. Although they have a budget for vehicle maintenance and acquisition, adding more increases maintenance and inventory costs. To drive these costs down, these agencies sell their cars at an auction.
o Lenders – These include financial institutions such as banks whose borrowers use vehicles as collateral. If the borrowers default on their payment, repossession of the vehicles may proceed to recoup the losses. However, repossessing the vehicle doesn’t mean they already earn cash. To do that, lenders need to sell them. To sell them quick and easy, they are often offered at an auction.
o Police – While police maintains their own vehicles that can be later sold for auctions, they also keep other types of cars, which are actually seized assets. According to US law, the police are given the authority to seize assets, from vehicles to homes and money, the government believes may have been obtained through nefarious means. Since the police are not in the business of buy and sell of vehicles, they have to dispose of these assets right away through an auction.
• Join many auctions. A lot of people don’t know the United States has hundreds of auto auctions every year, some of which are really big and participated by thousands of bidders and hundreds of sellers and vehicles. This works in your favor especially since you can’t expect to win at every auction. If you don’t make it in one, you can always try again in another auction.
Where to Find These Car Auctions
If you have been updating yourself about your industry or have built a good business connection, you should also have knowledge of what and where these auctions are.
But that doesn’t happen all the time, and even the bigwigs don’t know much of the other auctions. If you truly want the ultimate insider secret, the next best step to take is to subscribe to an auction listing.
An auction listing like Gov-auctions.org provides you an exclusive access to most, if not all, of the auctions happening around the country. It’s a database of auctions, which is updated almost every day to reflect the real status of these auctions.
Although these websites don’t engage in auctions themselves, they are helpful since they can provide you with the following information:
• Location, date, and organizer of the auction
• Status of the auction (ongoing, scheduled, done)
• Expected participants (e.g., private, dealers only, public, or online)
• Vehicles that are up for auction (e.g., model, year, mileage, condition, and photos)
• Date of vehicle inspection
• Joining fee
• Minimum bid price
• Contact person
• Other contact details (e.g., e-mail address or phone number)
You can also sort the list by specific parameters like location and status, which allows you to prepare better for bidding and auction.
In truth, these are all outlooks or forecasts, which means they may or may not happen. You may or may not succeed. The future, after all, doesn’t offer any guarantee to anyone, whether you’re a businessperson or a consumer. Nevertheless, being prepared helps. Use these data and tips as your guide when you make business decisions.