U.S. auto sales for the first six months of 2018 were stronger than many analysts originally anticipated, but were driven in large part by growth in fleet sales while retail sales were essentially flat.
Higher interest rates, some pullback by auto lenders, less consumer demand and higher gas prices were among the headwinds faced by the U.S. new vehicle market. However, it still managed to see an increase of 1.9 percent for the first six months of 2018 versus same period in 2017 (car sales fell by 11.8 percent, while light truck sales grew by 10 percent).
Most new and used vehicles were financed, with average payments and loan term lengths hitting new highs, according to Experian’s “State of the Automotive Finance Market First Quarter 2018” report.
Unfortunately, this means that many more people owe more money on their vehicles than they are worth, and the percent of new vehicle loans with negative equity also remains high, according to Edmund’s 2018 Automotive Industry Trends: Midyear Update.
How will tariffs affect pricing?
Growing issues with new vehicle affordability have been a key reason used vehicle sales have remained strong both in terms of volume and pricing.
Despite significant increases in used inventory from large volumes of lease returns, wholesale and used vehicle prices have remained relatively stable, registering much smaller declines than many analysts had originally feared.
The younger age and quality of vehicles coming back as lease returns have led to higher overall used vehicle transaction prices, which according to Edmunds.com, reached an average of $19.7K in Q1 2018 versus $16.7K in Q1 2013.
The tariffs imposed by the U.S. on July 6 of this year and the threat of additional tariffs could drive up new vehicle prices even further, potentially slowing auto sales in the second half.
The tariffs against China that went into effect in July add a 25 percent border tax to Chinese-made vehicles made for U.S., and U.S.-made vehicles face a new 40 percent tariff in China.