Is That New Car Smell Worth $14,000?
The average transaction price for a new vehicle last month was $37,401, down slightly from the July average, but up 2% year over year. Perhaps that’s one reason that franchise auto dealers are reporting stronger sales of used cars than sales of new cars.
In its latest survey of car dealer sentiment, Cox Automotive reported that franchised dealers give used car sales an index score of 73, the highest in the past 10 quarters. An index score above 50 indicates positive sentiment. Independent dealers have a different view, however, assigning an index score of 49 to used car sales (they don’t sell new cars).
Index scores for used car inventories came in a 54 for franchised dealers and 44 for independents. Overall, franchised dealers believe business will remain strong in the current quarter (index score of 57) while independents are much less sanguine (49).
It could be that franchised dealers are more upbeat because their inventories of used cars continue to grow and that gives them something to show off to customers who are reluctant to spend $37,000 on a new car. After all, in the second quarter of this year, a customer who purchased a three-year-old vehicle saved an average of $14,443 compared with an equivalent new model, according to Edmunds. By the time new car buyers have added desired options on new cars, the price of the vehicle rose by more than $10,000 above the price of a base model.
Ivan Drury, senior manager of technical analysis at Edmunds, commented, “[N]ew-car shoppers are packing on the options like never before, which is now starting to trickle down into the used market. From alternative powertrains to advanced technology, entertainment and safety features, we’re seeing a dramatic increase in added options, and this is [happening] across virtually all vehicle categories — not just heavy-duty trucks or luxury cars. The consumer mindset has definitely shifted to embrace ‘more car’ across the board.” These are the best car brands of 2019.
The good news for used car buyers is that the price of those options drops quickly. Edmunds cites as an example a new 2014 Honda Accord with an added cost of $10,278 for the highest trim level. That same car today costs just $4,402 more than the base model. Even so , there are still some cars consumers balk at buying. Here are the cars Americans don’t want to buy.
Here’s Drury again: “Used-car shoppers are getting the most bang for their buck because they’re acquiring amenities and advanced technology features at a fraction of the original purchase price. If you’re in the market for a vehicle and finding that the cost of a new car is just out of reach, take a look at the used inventory at your local dealership.”
In the second quarter, used vehicle transaction prices posted a record average of $20,664, according to Edmunds, for vehicles with an average age of four years, the lowest average age ever for the quarter. In large measure, that’s due to an increase of sport utility vehicles in the used market where these highly in-demand vehicles make up 40% of used vehicle sales.
As long as new car buyers keeping loading on the options, used car buyers will continue to get to choose among higher-value vehicles with a significant discount for all the bells and whistles the original buyer paid for. All except that new car smell.