Higher new-vehicle prices fuel used sales

Rising new-vehicle prices are helping fuel the used-vehicle market, especially among younger buyers, said Jonathan Banks, vice president of vehicle valuations and analytics for J.D. Power.

Speaking Thursday at the J.D. Power Automotive Summit here, Banks said Generation Z buyers are increasingly unable to afford new vehicles, and would rather look for bigger used vehicles with more content than cheaper, smaller new vehicles. Generation Z buyers are those born after about 1996.

J.D. Power says sales of vehicles less than $20,000 fell 19 percent last year, while sales of vehicles more than $40,000 rose 7.4 percent. The average new-vehicle transaction price in 2018 was $32,500, up from $31,700 in 2017.

Buyers are "definitely switching over to the used market," Banks said, calling it a "huge opportunity" for dealers to persuade more customers to switch. "You can't argue with the value."

He said used-vehicle prices are, on average, 51 percent cheaper than new vehicles, and 31 percent cheaper from a monthly payment standpoint.

The used-vehicle market is also bucking the trend of consumers moving from sedans to light trucks.

In 2018, sales of used midsize sedans rose 7 percent, and sales of used compact cars climbed 9 percent. Cars represented 34 percent of the used market.

"The segment dynamics really surprised everyone," Banks said.

Used-vehicle prices rose 2.9 percent in 2018, but Banks expects used prices for units up to 8 years old to fall 1 percent in 2019. He expects further decreases in 2020 and 2021.

Supply of used vehicles 3 years or less is expected to peak in 2019 before falling slightly in 2020.

"We think the used market is really poised to offer huge opportunities that haven't really been around and are based on a fundamentally healthy market," he said. "The market is healthy, but healthy because of foundational aspects. We're talking about real demand."