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Ted Gaines

Ted Gaines VP Marketing

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Increased new car prices propel used car sales to new heights

This year alone, the used car industry has taken over in terms of profit and sales. And it would be disingenuous to say it isn’t at least partially due to the tariffs imposed by the U.S. on China, Mexico, Canada, and the European Union– with tariffs of 25% on steel and 10% on aluminum. So, while automobile manufacturers and new car dealerships are beginning to take a hit, the used car industry’s growth in sales are predicted to continue in an upward trend.

2018 has been a record-breaking year for used car sales according to CNBC’s, Robert Ferris. This isn’t to say there aren’t legitimate concerns for the automobile industry in general, but with price increases on steel and aluminum, there will be a “trickle-down-effect” where increased manufacturing costs result in increased prices for both new and used vehicles.

While the industry is still doing well in spite of the tariffs, there are anxieties among new car dealerships and manufacturers due to increased manufacturing costs. The new manufacturing costs mean new car dealerships will have to buy and sell vehicles at a higher price. So, even if people are selling their vehicles to used car dealerships at a slightly higher price, the used car industry is making a huge profit as the cheaper option– avoiding the expenses manufacturers and new dealerships have to take on while also selling vehicles at a higher valuation.

According to the International Trade Administration and Washington Post’s, Heather Long, 79% of all steel and 90% of all aluminum are imported to the United States from foreign countries. Even vehicle brands commonly purchased in the U.S. such as Nissan, Honda, and Toyota are typically manufactured in either Canada or Mexico and then shipped into the United States. This means any vehicles imported into the U.S. with the current tariffs cost more in comparison to domestically manufactured vehicles– and domestic companies such as Ford, Jeep, and Chevrolet still use imported materials and parts to construct their cars.

In essence, the tariffs are bad for manufacturers and new car dealerships, but great for used car dealerships. This is due to the increased costs limiting consumer options and forcing them into purchasing specific vehicles or pursuing the used vehicle route. And according to Forbes Magazine’s automotive journalist, Jim Gorzelany, estimated increases on new vehicle costs based on current MSRPs will look something like this:

Vehicle

Country of Manufacture

% of domestic parts

Current MSRP Range

Estimated Price Range Increase

Ford F-Series

United States

65%

$29,440 – $65,670

$2,572 – $5,746

Chevrolet Silverado

United States

46%

$29,580 – $56,670

$3,993 – $7,650

Honda CIvic

Canada

60%

$22,235 – $27,695

$2,223 – $2,769

Toyota Corolla

United States

60%

$19,520 – $23,700

$1,952 – $2,370

Jeep Wrangler

United States

74%

$28,190 – $38,190

$1,832 – $2,482

Nissan Altima

United States

55%

$24,145 – $34,515

$2,716 – $3,883

Even prior to the current tariffs, used car dealerships have been dominating the automobile sales market– with 39 to 40 million used cars sold every year. Most of the technology in used vehicles is the same as in new ones, but offered at a lower price. So, the incentive to consider a used vehicle greatly outweighs the purchase of a new car for most American consumers. According to CNBC’s, Ferris, crossovers and sports utility vehicles are the most popular purchases, and consumers will hold out until a used option is available. So, with tariffs thrown into the fray, manufacturers and new car dealerships must prepare to receive less business because consumers are finding used cars as the more attractive option.

AMT is committed to helping dealerships understand and control used car reconditioning for optimal results. As the market for used vehicles becomes more active, getting your inventory frontline ready with minimal holding costs is crucial for your operation. We can help.

Sources:

https://www.cnbc.com/2018/07/06/tariffs-could-send-american-car-buyers-into-the-used-market.html

https://www.forbes.com/sites/jimgorzelany/2018/07/05/heres-how-much-trump-tariffs-could-boost-prices-on-the-top-selling-models-in-the-u-s/#30ab4c127ec1

https://www.trade.gov/steel/countries/pdfs/imports-us.pdf

https://www.washingtonpost.com/news/wonk/wp/2018/03/01/foreign-suppliers-are-flooding-the-u-s-aluminum-market/?utm_term=.41a5fe3869f2

 

Kelly Kleinman

I think it's going to be a boon for used car dealers in the long run. We're seeing a lift in new car sales right now, possibly in anticipation of the bump in costs that's just around the bend as consumers take advantage of current pricing and promotions.  Overall monthly calendar sales have been down in most cities when you compare the same month 2018 sales to 2017 (i.e May '17 to May'18 etc.).  July was the first month in a few months to buck the downward trend.  Just think about the market factors that should be driving folks away from the new car market, increased interest rates, tougher lending practices, a glut of off-lease rides, and soon to be price increases. All that has to happen is that the Feds stop raising interest rates or drop rates a point to offset the tariff issue and the new car biz will do just fine.

Ted Gaines

Here's hoping that will occur! Part of the July improvement may also be some leftover exuberance from tax changes (combined with the factors you cited). I think, as with most things, the balance will shift both directions for new car dealers before settling on an outcome.

Kelly Kleinman

Right on!

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