New car sales see long term drop going into 2020. At the new vehicle side of a dealership, cars are dead. They’re a big force behind what I call Carmageddon. New car sales have been getting crushed since 2014, while sales of “trucks” – pickups, SUVs, crossovers, and vans – have become red-hot. Carmageddon is now in its fifth year. From 2014 through 2018, industry-wide new-car sales have plunged nearly 30% to just 5.5 million units while new “truck” sales have soared 38% to 11.8 million units.
For 2019, new car sales will likely drop to about 4.8 million units and new truck sales – pickups, SUVs, crossovers, and vans – will rise to around 12.4 million units, according to my own estimates based on current numbers:
American consumers seem to fall into two categories: Those that cannot afford new midsized cars are buying them for a fraction of the cost as used cars; and those who can afford them pay some extra to buy new pickups, SUVs, crossovers, and vans.
Wall Street is not complaining about this part of the shift: Profit margins on trucks are huge because Americans are willing to pay a lot extra for large vehicles, even if the cost to the automaker is nearly the same, while profit margins on lower-end cars – not luxury cars – are very tight. It’s getting to the point where automakers are abandoning the classic sales distinctions of “cars” and “trucks” because they no longer really make sense.
But as used vehicles, cars are doing very well – at a fraction of the cost. Many of these used cars are former rental cars that dealers buy at auctions around the country.
And the price surge in used vehicles, as seen in the charts above, also shows up in the average loan amounts taken out per financed used vehicle. According to Federal Reserve data, the average amount of a used car loan taken out in Q4 2018 (latest data available) jumped 5% year-over-year to $18,431 per used vehicle financed:
And average loan terms for used vehicles have been rising for years, as dealers and finance companies are trying to put deals together that consumers can’t afford otherwise, despite historically low interest rates. According to the latest data from the Federal Reserve Board of Governors, the average length of used car loans originated in Q4 has risen to a record 62.2 months:
The Manheim auction data used in the first three charts above describes pricing in the wholesale market. But the retail market is far broader. It includes person-to-person sales of used vehicles, and dealer retail sales of used vehicles. This market has an estimated sales volume of about 40 million vehicles per year – compared to the new vehicle market of around 17 million vehicles a year.
Cox Automotive, which also owns Manheim, estimates that used vehicle sales volume in May fell 4.0% year-over-year, to a seasonally adjusted annual rate of sales of 39.2 million units.
In terms of new vehicles, Cox estimates that sales fell 0.5% to a seasonally adjusted annual rate of 17.3 million vehicles, with car sales plunging 12% year-over-year, in line with Carmageddon; and “truck” sales – pickups, SUVs, crossovers, and vans – rising a weak 5%.
Fleet sales were hot, while retail sales were cold: Cox estimates that in May, sales to rental fleets soared 14% and sales to commercial fleets 12%. This leaves retail sales down 3% in May year over year.
These fleet sales eventually supply the used vehicle market as rental-car companies and commercial fleets cycle through their vehicles by selling them at auction, or as is the case with some rental fleets, by selling them directly to retail customers. And many of these units are cars, and they’ll be a lot more affordable when they sit on dealer lots as used vehicles than as new vehicles.
“When times are tough, the thinking switches to the short-term. Many fleets are just fighting for survival.”
