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Cox: Off-Lease Tidal Wave Poses Greatest Risk to New-Vehicle Sales

March 29, 2018

ATLANTA — The wave of off-lease vehicles expected to return to market poses one of the greatest threats to new-vehicle sales in 2018, according to Cox Automotive’s 2018 Used Car Market & Outlook report. But it’s not just the sheer volume of off-lease vehicles; it’s the type of vehicles expected to return to the market this year and next.

According to the report, nearly 3.9 million off-lease vehicles will return to the market this year. The type of vehicles coming back consists primarily of low-mileage SUVs, CUVs, and pickups, the same vehicles attracting the most demand in the new-vehicle segment. And at lower price points, these off-lease vehicles could seriously eat into new-vehicle sales.

“These are not stripped-down, baseline versions of higher-end nameplates, as most, if not all, will have touchscreens, Bluetooth connectivity, and other key features consumers crave,” the report noted. “This will be a significant threat to some new-vehicle segments as used products will provide a viable alternative for some car shoppers.”

The off-lease vehicles returning to market this year and next are different from the off-lease vehicles that have returned to the market in recent years — mainly cars purchased prior to 2014 when gas prices were high.

After 2014, when gas prices began to drop and the economy began improving, consumer demand began shifting toward larger SUVs, CUVs, and pickups. Due to the nature of three- to four-year lease terms, the type of off-lease vehicles returning to market had yet to catch up to current consumer demand.

By the end of 2018, Cox Automotive expects used-vehicle sales to total a record 39.5 million units and new sales to total 16.7 million units. This would represent a 2.3% year-over-year decline on the new side and a 0.5% increase on the used side.

In 2017, a record 39.3 million used vehicles were sold, while new-vehicle sales totaled 17.1 million — a 2% year-over-year decline.

“The U.S. economy in 2018 is ripe for continued strength in used-vehicle sales,” said Cox Automotive Chief Economist Jonathan Smoke.

One factor that could negatively impact used-vehicle sales is the continued rise in interest rates. That’s not the case on the new side, where automakers can offset rising rates through the use of incentives.

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