Hefty prices & fewer car models in new-vehicle market may lead 500K to pre-owned
Automakers are trimming car models from their new-vehicle lineups, and this has led to fewer and fewer affordable alternatives in a market where transaction prices reached record levels last month.
That, says Edmunds, “will create a barrier to entry for many consumers and force them into the used-car market.”
Perhaps to the tune of close to 500,000 shoppers, estimates Edmunds analyst Ivan Drury.
On Thursday, Edmunds shared several projections for 2021, one of which was that the new vehicles “will continue to grow more pricey and exclusive as the pandemic drives an income divide among Americans,” the company said in a news release.
In fact, the average price on a new vehicle last month was $40,753, a record high, Edmunds said. And it’s likely to continue rising, driven by increased demand for pricier trucks and SUVs.
“Edmunds analysts expect this number to go up as affluent consumers benefiting from lower interest rates and healthy stock and housing markets continue buying bigger, more expensive new trucks and SUVs,” the company said of December’s record.
This is likely to have a ripple effect on used cars, as many consumers are expected to be priced out of new vehicles, given the rising prices and lack of lower-cost alternatives.
In follow-up comments shared by Edmunds via email, Drury estimates a half-million consumers could turn from would-be new-car buyers to used-vehicle buyers.
His calculation is based on the 2014 sales volumes of models cut from automaker lineups for 2021, assuming a 6-year trade-in cycle, Edmunds said.
As for where the total sales are headed in the used-car market, Edmunds is forecasting 41 million this year, up from an estimated 38.3 million sales in 2020.
The company projects 15.5 million new-car sales in 2021, which would beat 2020 figures by 6.5%.
“2020 was an incredibly tumultuous year for the industry, but some unique market conditions helped retail sales end up in a much stronger place than anticipated, and the good news is that these should serve as some decent tailwinds into 2021,” said Jessica Caldwell, Edmunds’ executive director of insights, in a news release.
“Despite the economic hardships faced by so many Americans during the pandemic, there’s still a large population of well-off consumers who have been taking advantage of favorable financing conditions and sustaining healthy demand in the new-car market,” she said.
Edmunds is among the latest to share projections for new- and used-car sales in 2021. Within pre-owned, specifically, TrueCar is forecasting 40.05 million total used-car sales for this year.
Cox Automotive is projecting used sales will climb to 39.3 million this year and 40.2 million next year, before moving down slightly to 39.8 million in 2023.
Cox Automotive estimated that used-car retail sales (those involving a dealer) fell from 20.8 million in 2019 to 19.5 million last year.
But those used retail numbers are expected to climb to 21.2 million sales this year, 22.1 million in 2022 and 22.4 million in 2023.