Used vehicles drive down new-vehicle sales

A glut of off-lease vehicles is flooding the market and driving down sales, but the industry remains healthy thanks to strong new-vehicle pricing, according to J.D. Power's annual market outlook.

"Any way you look at it, the industry remains strong," Thomas King, senior vice president of J.D. Power's data and analytics division, said Thursday at the J.D. Power Automotive Summit here. "Sure, sales could be better, but when you look at some of the other metrics, in absolute terms, it's still very, very good."

J.D. Power forecasts U.S. new-vehicle sales of 13.8 million this year, King said, down roughly 200,000 from a year ago.

Vehicle prices are averaging $32,200 so far this year, up $500 from the same period in 2017. Sales of vehicles less than $20,000 have fallen 19 percent so far this year, while sales of vehicles $40,000 or more have risen 4 percent.

Customers are on track to spend $444 billion on vehicles this year, roughly the same as last year, King said.

Part of that sales decline is because of a rising number of used vehicles entering the market. J.D. Power expects 3.7 million vehicles will come off lease and return to the market this year, up from 3.4 million last year. That number will grow to 4.1 million in 2019, King said.

"The used-car market is at risk of overwhelming the new-car market," King said. "That's a problem for manufacturers, but for retailers, there is a tremendous profit opportunity on these used vehicles."

As automakers reckon with customers choosing used vehicles, incentives on new vehicles continue to rise, but not at the same rate as in recent years. That's because of a decline in incentive spending on cars, King said.

The car market continues to be "pretty brutal," he said. Sedans represent 32 percent of automakers' mix so far this year, down from 36 percent a year ago, as customers continue to choose utilities and pickups.

Automakers are also putting more vehicles in fleets, King said. So far this year, they represent 24.1 percent of sales, up from 22.5 percent in 2017 and 19.3 percent in 2014.

King said manufacturers will have to show discipline moving forward on incentives, fleet sales and the amount of cars they offer.

He said: "Everybody remains aggressive, so maintaining pricing and production discipline will be absolutely key to the long-term health of the industry."