Nowadays, there is a rising trend of people opting for used cars rather than new ones. Of course, buying used vehicles comes with certain benefits like no immediate depreciation and lower insurance costs, but what exactly is behind this movement trending towards used cars?
July 2018 saw a 3% increase in used car prices and 5% overall compared to July 2017
It is a fact that car prices have been rising with demand. There has been a 3% increase in used car prices and 5% overall compared to July 2017, according to Cox Automotive. The President of the Louisiana Automobile Dealers Association, Will Green has pointed out a couple of reasons for this rise. One reason is that more people are buying cars that leasing and these cars tend to be more valuable. Another reason is the occurrence of natural disasters, which have destroyed or damaged many vehicles, creating bigger demand, which drives prices up. However, this is not a uniform effect nationwide. Weaker economic growth in certain parts of the country where specific industries dominate the areas like agriculture or oil drilling affect the conditions for individuals to purchase vehicles either new or used. These circumstances force dealers to lower prices for used cars to keep selling. This is the case in Louisiana, where prices are lower than the rest of the country due to the state’s lower economic growth, which is directly affected by the oil industry. But Louisiana seems to be an exception to the national trend.
39.5 million used cars were sold in 2017
According to Automotive Fleet, in 2017 39.5 million used were cars sold, while in contrast only about 16.7 million new vehicles are expected to sell in 2018. The new-car market has only about half as many sales as the used-car market. Automotive Fleet mentions several factors that contribute to the rise of the used car market. One of these factors is the rise in demand for used SUVs and CUVs. Another factor is the growth in the need for pre-owned vehicles less than a year old. These vehicles have the advantage of being almost new but come with a much lower price tag.
Trump cuts taxes on used vehicles
According to Automotive Fleet, the rise in used car sales goes back to Trump’s tax cut on used vehicles which makes buying used cars particularly attractive to lower-income consumers. The average new car is purchased or leased by a household with 100,000 in income while a household with 70,000 and below income trends towards buying used cars. For the majority with at or below the 70,000 margin, the tax cut brings more benefits to buying a used vehicle than a new one.
Used cars will continue to become more and more popular
For those that are looking into buying a used car, this trend is expected to go well into 2020. This means that the market is ripe for the buyer, according to ThoughtCo. According to Jessica Caldwell, Edmunds executive director of industry analysis, used vehicles will continue to become more and more popular, especially if interest rates go up. However, according to ThoughtCo, the values of used cars are predicted to drop 12.5 percent by 2020. The increase in demand for used vehicles and the increasing supply of used cars will bring down values even further. According to ThoughtCo, minivans and full-size pickups are the vehicles that are hit the hardest with over an 8% price drop already. For the buyer, this means that it is a great time to buy another car, but if you can, ThoughtCo recommends that you wait until 2020 when prices hit their minimum.
From an economic standpoint, the market for used cars will continue to rise, meaning that dealers will have more profits from more sales and buyers will save more money due to decreasing values. This also means that for small companies that sell used vehicles and low-income households that acquire them benefits will add up while for the large car manufacturers, the profit margins will lessen and sales will suffer. All in all, this shows that right now the market is buyer-friendly and as long as used cars are in high demand, especially the very popular SUVs, and crossovers, the market for used cars will continue to grow.