New car prices have been all over the place in the last decade. When the Great Recession happened, sales obviously tanked—and when they did so, prices plummeted. Since the economy has mounted a recovery, vehicle sales have gone up, and in fact they set record highs in 2015—causing prices to once again rebound. If anything, though, they have rebounded a little too much; the cost of a brand new car has never been higher than it is now, so it’s no surprise that sales are once again toppling, as consumers balk at the hefty price tags and seek alternatives.
Those alternatives, of course, encompass used car dealerships, which can provide reliable vehicles for much less than what brand new vehicles are going for. It’s no secret that, as new vehicle sales have gone down, used car sales have increased. In fact, used car sales have actually surpassed new car sales in a few states.
New Car Dealerships in a Tight Spot
Naturally, declining auto sales have proven worrisome to new car dealerships—but many dealerships seem unable to really address the underlying issue.
“Although overall industry sales are tracking last year’s record 17.5 million, many automakers are selling more cars to rental companies to maintain the momentum,” reports The Associated Press. “Sales to consumers are declining, so companies are ramping up incentives. Discounts in September hit a level not seen since automakers were desperate for sales during the financial crisis in late 2008.”
But when new car prices are so high—the average cost of a new vehicle is now in excess of $30,000—discounts don’t make that much difference, especially not when consumers know that perfectly good used cars are available for less than half that price.
A Bad Trend for Consumers—and for Dealerships
The problem isn’t just that prices are high, though—it’s that they keep climbing higher.
“Auto prices have risen every year since the Great Recession, hitting a record average of $31,825 in December of 2015,” according the AP story. “The average price in September was $30,862, an all-time high for the month. Prices have remained elevated largely because buyers are still paying top dollar for red-hot segments such as crossovers and big SUVs, which cost more than sedans.”
It’s entirely possible that slowing sales will eventually bring prices down; certainly, that’s what happened during the Great Recession. That’s not the ideal scenario for new car dealerships, but it’s hard to tell what they can do to make themselves more competitive with used car lots.
Used cars represent value, plain and simple—and now that consumers know they can get great cars for exceedingly discounted prices, it’s hard to see what could stall the growth of used car sales. Only time will tell, of course, but our prediction for now is that the consumer trend toward used vehicles will only continue.