The fundamental law of supply and demand reigns supreme. When supply is much higher than demand, it’s a buyer’s market. For savvy auto buyers, with a little patience, good values should appear as the 2017 model year winds down.
While on vacation in Indiana, my regular lunch time walk to the local hamburger haven included a short cut through the sales lot of two large dealerships. They are loaded with inventory; balloons, sales stickers, and banners are everywhere. I love the sign in an $88,000 SUV, “Free car washes for life!”
I noticed one thing missing – CUSTOMERS!
Since the 2009 crash, loose lending standards caused auto sales to climb steadily, until recently.
Auto sales are declining. The Truth About Cars published May sales results:
“…May 2016 sales had fallen 6 percent compared with May 2015 levels.
…The auto industry is in a general state of decline in the United States. …Sales have now declined, year-over-year, in five consecutive months.”
It’s now six months as the Detroit Free Press tells us: “…Chrysler …announced its sales fell 7% in June while sales also fell 5.1% for Ford and 4.7% for General Motors.”
Inventories are rising. The Truth About Cars also reports “Domestic Automakers’ Inventories Soar Past 100 Days’ Supply.”
Incentive spending is on the rise. Bloomberg reports:
“Incentive spending reached a May record of $3,583 per vehicle on average during the beginning of the month, according to J.D. Power.
…Slower sales have saddled automakers with too much inventory and precipitated bigger discounts…”
Production layoffs followed. The Drive.com reports:
“…Ford has laid off 130 workers from its Avon Lake, Ohio truck plant. …The plant is slowing production to …match a decrease in demand.”
GM joins in. CNN Money reports:
“This is the fifth time that GM has eliminated a shift of work at a U.S. plant since last November, eliminating a total of about 5,000 jobs.
…About 700 of the GM workers …are expected to get their jobs back next year as GM ramps up production once again.”
Loan defaults are rising. Wolf Richter, who coined the term “#Carmageddon”, tells us:
“Subprime Auto-Loan Backed Securities from 2015 on track to be Worst Ever.
Institutional investors that manage other people’s money grabbed subprime auto-loan backed securities because of their slightly higher yields.
…Those issued in 2015 may end up the worst performing ever in the history of auto-loan securitizations, Fitch warned.
And then there are those issued in 2016. They haven’t had time to curdle.”
Lenders are tightening standards. With delinquencies rising, and the Fed raising rates, lenders are becoming more selective. Bloomberg tells us:
“With both bad loans and interest rates on the rise, financial institutions are becoming more selective in doling out credit for new-car purchases, adding to the pressure for automakers already up against the wall with sliding sales, swelling inventories and a used-car glut.”
The combination of slower sales, rising inventories, tougher lending standards, higher incentive spending and the end of the model year will provide savvy buyers a great buying opportunity.
Most people HATE to buy cars. Like it or not, getting a fair deal (not overpaying) requires buyers to do their homework and be good negotiators. Both new and good used cars are expensive. Taking you time and doing your homework can save you thousands of dollars.