The strength of the U.S. economy, gasoline prices, jobs growth, interest rates, and consumer confidence have long been some of the primary factors that determined whether vehicle sales were up or down in a particular year. Starting in 2018 (and beyond), auto sales will also depend on new factors, such as the pace of advancement in electric and autonomous technology.
Sales of new vehicles fell by 2%, to 17.2 million, in 2017 and the consensus of analysts is that U.S. sales will drop again in 2018, with predictions ranging from 16.6-17.08 million vehicles, mostly due to rising interest rates (thanks to three expected hikes by the Federal Reserve in 2018), a surge in off-lease vehicles and a reduction in pent-up demand after several years of record-setting sales.
And the multi-year trend in passenger vehicle and light truck sales continues with passenger car sales down approximately 10% in 2017 and light truck sales up 4.6% and accounting for 63% of ALL vehicle sales. This trend led to a rise in discounts on small cars in 2017, but analysts don’t expect incentives to get as high as they did as manufacturers tried to lure back customers after the Great Recession. Manufacturers are likely to cut production on slower-selling models, rather than continue to increase incentives.
Lease Returns Will Boost Used Vehicle Sales
U.S. used-vehicle sales are expected to rise in 2018 as a huge number of off-lease vehicles return to dealership lots. While this may contribute to a slight drop in new vehicle sales, the good news is that dealers typically earn more profit selling used vehicles so the bump in inventory could be welcomed by many dealerships.
In addition to the rise in off-lease returns (as high as 3.9 million vehicles in 2018), there are other factors that benefit used vehicle sales, including falling prices and a rise in available used crossovers and SUVs, which are in high demand. Also, as interest rates edge up (100 basis points in the past year and more increases expected in 2018), consumers may elect to buy a used vehicle instead of a new one.
NADA forecasts used vehicle sales will top 40 million in 2018, with franchised new-car dealers representing 15.3 million of that total (37.5%).