Rising incentive spending will put significant downward pressure on used-car pricing this year, J.D. Power automotive analyst Jonathan Banks said Friday.
Incentive spending rose to $4,001 per unit in 2016, Banks said at a joint press conference with NADA chief economist Steven Szakaly and Melinda Zabritski, director of automotive credit at Experian Automotive.
Incentive spending, combined with a glut of off-lease vehicles returning to market, could push used prices down by about 4.8 percent this year, the lowest level since the economy was emerging from the recession in 2010.
“You keep lowering the new-car price down and the used-car prices are coming down. Meanwhile, more used cars are coming in offering a value story, which might stimulate the manufacturers to increase incentives even more,” Banks said.
“You get kind of a vicious circle between the two, which could be really bad especially when you’re spending a lot of money. It’s a bit of a frightening situation, in my opinion.”
Used-vehicle pricing spiked in the wake of the recession, and levels had remained high through 2015. Beginning last year, used-vehicle pricing began showing signs of declines and 2017 should be the year pricing returns to historically normal levels, Banks said.
“We think incentives are going to have a huge impact on pricing because we don’t see a big pullback in that spending,” Banks said.
Szakaly said the new-vehicle market could remain stable at 17.5 million units in 2017 if President Donald Trump’s tax and infrastructure plans come to fruition, up from a baseline, pre-election forecast of 17.1 million units.
“The likelihood of everything passing is very, very low, so we might be looking at some kind of mix,” he said.