Friday, 28 June 2019 08:24

Uncertain Times for U.S. Auto Industry

Written by Dave Leggett, just-auto


A new Edmunds report says 2019 has been a year of contrasts for automakers as they struggle to find a new normal amid rising interest rates, waning demand, dramatic growth in the used market and uncertain government policies.

"Automakers are fighting a war on multiple fronts right now: Old cars are piling up on dealer lots, a glut of affordable off-lease vehicles are luring shoppers into the used market and even with the Fed anticipated to lower rates in July, higher interest rates are here to stay," said Jeremy Acevedo, Edmunds' manager of industry analysis. "Strong economic indicators such as consumer confidence and low unemployment are keeping sales at historically elevated levels, but automakers have also been relying too heavily on fleet sales to keep these numbers up which isn't a sustainable model."


According to Edmunds data, new vehicle sales are down 2.4% year-over-year through May and Edmunds analysts maintain their forecast that 16.9 million new vehicles will be sold in 2019. In addition to a deeper dive into sales figures, the Midyear Report also reveals:


A strong economy is propping up what could be an even weaker auto market. Unemployment is at 3.6% - the lowest it’s been since 1969. Consumer sentiment is at its highest level of 2019.


Elevated inventory levels are setting the stage for attractive deals this summer. Even though inventory dipped below 4 million units in May, analysts say this is still too high given current demand. Interest rates are making it more expensive for automakers to offer bargain-basement deals, but shoppers can expect decent incentives at least through the summer months until automakers can adjust production.


Increasing interest rates continue to create affordability issues for car shoppers. The average annual percentage rate (APR) on new vehicle loans is 6.2% this year. According to Edmunds data, a shopper will spend about $2,000 more in interest on average over the course of a loan in 2019 compared to three years ago.


Higher prices aren't enough to convince car shoppers to break the leasing cycle. Through May 2019, lease penetration hit 32.2%; the highest Edmunds has on record since 2002.

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