A Potential Shift in Consumer Preference to Used Cars Over New Cars
2019 also raises concerns for new versus used car prices and greater car value depreciation. Over the last seven years, 54% of vehicles sold in the US were under 30 thousand dollars, while only 6% were above 50 thousand. By the end of 2018, these figures flipped; instead, we saw a quarter of vehicles sold in the US were now above 50 thousand dollars, and just under a third were under 30 thousand dollars. This poses a major threat to the price elasticity of US household demand, a topic addressed in a February blog post.
The average monthly payment for a new car is 533 dollars–10% of median US household income. A share of income that is too high to allocate towards a car payment. The price gap between new and used monthly car payments is widening every year. Even those with good credit are turning to used vehicles. If given the opportunity, consumers know they are better off purchasing off-lease, lightly-used vehicles that they can afford versus brand new vehicles that depreciate in value each mile they’re driven.
For now, based on trends in the used car market we can continue to expect higher numbers of SUVs and minivans on the road. An increased use of these vehicles will in turn, also lead to downward pressure and stability in price. Full-size sedans, pickups, SUV’s, and minivans are all expected to drop as low as 7-8% in price compared to last year. Gasoline prices are also expected to remain relatively low and not catalyze any panic or shift in the car market. In sum, there is no cause for concern. The US economy is still strong, consumer confidence and employment remain high, and there are plenty of new and used cars to pick from.