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:

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