Generous credit and technology buoy new vehicle sales, threaten used values

new vehicle salesUsed car values just aren’t what they used to be – for now, at least.

Increasing availability of credit and longer loan terms spurred on by competition are possible reasons for the recent shift from used to new vehicle sales, reports IHS Inc. market research firm.

An analysis of vehicle registration patterns by IHS shows that more than 3.2 million used vehicle owners returned to market to purchase a new vehicle during the first half of the year, according to Tom Libby, a solutions consultant in the loyalty practice at IHS, with the percentage of used car owners now purchasing a new car at the highest level it has been in six years.

There are several drivers of new vehicle sales, Libby said:

“One is the new vehicle industry extending credit, broadening the range of credit approval and broadening the length of loans. We’re now seeing more and more eight, nine year loans, which obviously is going to lower those monthly payments.

“Also there’s intense competition that goes along with it. In the new-vehicle industry, that’s offering more [features], including at the low end of the market, based on price.”

The lure of new technology also is pulling buyers from the used-car market, Libby said, with more efficient fuel economy and safety features offered in newer vehicles hitting the market.

“The four-cylinder engines are much more efficient than they used to be, so they’re getting much better fuel economy,” Libby said. “So, if an owner of a vehicle has medium fuel economy and really needs something that gets better fuel economy, the new vehicles are leaps ahead of existing vehicles. And if a customer is really focused on safety, then technology could play into it.”

And the rapid growth of technology available in new cars should play a larger role in holding down the residual values of cars going forward, according to the consulting firm.

Still, amid all the industry changes, brand loyalty remains strong, IHS reports, with 30 percent of the 3.2 million used-to-new buyers purchasing the same brand as their used car or truck.

– Larissa Padden

Posted in Economics, News

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