Shopping for a New Car? Here’s What to Know Now

If you’re going to be in the market for a new car this year, it pays to know what sort of shape the auto industry is in and what sort of deals you can expect to find. If you haven’t shopped for new wheels in a while, you might be surprised at just how much the market has changed.

U.S. auto sales are still going strong, but they’re showing signs of weakening, according to industry analysts. Every expert I spoke with recently expects total sales to come in a bit below 17 million this year, which would be good, but behind the recent pace. Combined sales of cars and light trucks hit a record 17.5 million in 2016 and stayed above the 17-million market in 2017 and 2018; 16.8 million or a bit lower seems like a reasonable bet for this year.

What’s selling these days? Pick-up trucks and SUVs. Traditional truck stalwarts such as the Ford F-150 and RAM 1500 still roll off dealer lots in large numbers. Big SUVs are popular, too, but automakers are also scrambling to make more small and midsize SUVs. “It’s across the board,” says Kelly Blue Book Senior Managing Editor Matt DeLorenzo of the popularity of trucks and SUVs. Midsize pick-ups such as the Chevy Colorado are selling well, as are small, crossover SUVs. A couple of automakers are planning new, compact pick-ups, too. To paraphrase Alfred Sloan, General Motors’ longtime president during the first half of the 20th Century, the U.S. auto industry is now bent on offering a truck or SUV “for every purse and purpose.”

Traditional sedans, meanwhile, have fallen out of favor. Many once-popular nameplates have been retired or will be soon, and some automakers are abandoning sedans entirely. Large sedans are a dying breed, notes KBB’s DeLorenzo.

The shift to trucks and SUVs has driven the prices of new vehicles into nosebleed territory. Car shopping website Edmunds.com notes that a new auto costs, on average, more than $36,000, largely because of all the pricey trucks and SUVs buyers are snapping up. At the same time, interest rates on auto loans are at their highest level in years after the Federal Reserve hiked interest rates a couple of times.

Given the lofty prices and financing costs, shoppers not bent on a truck or an SUV should check out a sedan. They’ll find some compelling values. Many sedans have had design overhauls and been upgraded with premium features such as advanced safety systems and lavish interiors. Yet, their price tags are much less eye-popping than similarly equipped SUVs.

In terms of price discounts or other incentives, you might be surprised to find better deals on trucks and SUVs than on sedans, even though the latter aren’t selling as well. The prices of the former are so high that dealers have room to make concessions while still netting a solid profit. Also, dealers generally have larger truck and SUV inventories. To keep the bigger vehicles moving, dealers and automakers need to be willing to offer some discounts.

Whatever sort of new vehicle you’re looking for, it’ll pay to shop strategically. Jessica Caldwell, executive director of industry analysis at Edmunds, says that August and September should be good times to score deals because dealerships will be more eager to sell off 2019 models to make room for the 2020s. Year-end sales, when manufacturers get their last shot to pump up their annual numbers, figure to feature plenty of bargains, too.

She also urges consumers to not overlook the used market. A record number of vehicles were leased in 2016, which means a ton of late-models will need to be sold. That spells lots of opportunities among carmakers’ certified preowned programs. (CPO cars must pass manufacturer inspections and come with extended warranties.) Caldwell also notes that the technology you’ll find in a three-year-old car isn’t far behind what’s in new cars. Automakers have struggled to come up with new “wow” features lately.

Industry Outlook

A decade after it emerged from the Great Recession, when sales collapsed and two of Detroit’s Big Three filed for bankruptcy, just how healthy is the U.S. auto industry?

All the truck and SUV sales are a major boon for automakers. Their profit margins are hefty, especially when it comes to full-sized pick-up trucks. The Big Three, which dominate truck sales, are raking in particularly fat profits these days.

Moving more-profitable vehicles will cushion the blow of declining sales, says Bill Visnic, editorial director at the Society of Automotive Engineers. Plus, automakers’ operations are leaner a decade after the recession, which means they are less dependent on keeping sales volumes sky-high, he notes. Automakers would gladly opt to sell a smaller number of lucrative trucks and SUVs than a larger number of small sedans, which usually have razor-thin margins.

But that reliance on trucks and SUVs is also a liability. Haig Stoddard, industry analyst at WardsAuto, thinks total sales will come in at 16.9 million this year, but warns there is a fair amount of downside risk in that forecast, especially if the economy softens later in 2019. In that scenario, he expects that truck and SUV sales would take the biggest hit, given their high prices. After years of robust sales, the industry can’t count on as much demand from customers who really need to replace their old vehicle, Stoddard notes. Most of the folks who had put off buying a new vehicle in the wake of the recession have done so by now.

SAE’s Visnic echoes those concerns. Prices are “really getting a little bit scary,” he warns. Consumers can handle them, but only because they feel good right now about the economy and their own finances. If that positive mood sours, watch out. “A car purchase is a fairly discretionary thing” for most consumers, he points out. If they start worrying about the economy, they’ll easily punt on buying a truck or SUV that costs $40,000.

CAFE Rollback Uncorks Another Regulatory Fight

The Trump administration’s push to roll back vehicle fuel-economy standards sets the stage for a lengthy legal battle with Democrats, environmental groups and the state of California, who hail the Obama administration rules as a landmark achievement in the fight against climate change.

Once finalized, the joint proposal from the Environmental Protection Agency and Transportation Department would suspend required increases in corporate average fuel-economy standards (CAFE) after 2020, capping them at a fleet average of 37 miles per gallon. President Obama’s plan, by contrast, called for raising the standard to 47 miles per gallon by 2025.

Continue reading “CAFE Rollback Uncorks Another Regulatory Fight”

What Car Shoppers Need To Know This Year

If you’re in the market for a new ride or might be later in 2018: You’ll find better deals on popular SUVs and crossovers…new or used…if you wait a bit. Manufacturers continue to ramp up SUV and crossover production, so that supply of these popular vehicles may soon outstrip demand. Also, while vehicle sales are off to a good start so far this year, they’re likely to slow later, forcing automakers to rely more on discounting and other buyer incentives. These should approach $5,000 per vehicle, on average.

Given the popularity of SUVs and crossovers, manufacturers are offering more models than ever before, including luxury models. Car-based crossover SUVs are especially prized for their blend of size and practicality. Plus they’re relatively fuel-efficient, so the return of $3 gas won’t ding their popularity. As a result, manufacturers are cutting back on their car models. The Chevy Impala is likely to be cut, and Ford has already announced that it will abandon most of its car models in the next few years to focus on SUV/crossover/pickup truck production. (The Ford F-150 pickup truck is the best-selling model of any vehicle.) Even sedan perennial best sellers Toyota Camry, Honda Accord and Nissan Altima have required incentives to bolster demand. This means that there are likely to be some good deals on car models as the shift occurs, especially full-size and mid-size sedans. Demand for compact cars has ticked up recently as the cost-conscious buyer segment finds fewer low-cost options.

Interest rates are rising, with the rate of the average new car loan expected to jump from 5.0% to 5.5% by the end of the year. However, this is likely to increase the average monthly payment by only $7 over the life of a five-year loan.

For those interested in electric vehicles, hybrids with plug-in capability (called PHEVs) will be the most in demand, according to Jessica Caldwell, executive director of industry analysis at Edmunds. These vehicles have the most flexibility and range, currently. The Toyota Prius Prime, Chevy Volt, Honda Clarity and Ford Fusion Energi are examples. Caldwell expects electrics will account for 4.4% of total sales in 2018. Tax credits of up to $7,500 per vehicle, depending on the size of the battery, make these attractive. But buyers should be aware that the government program may be ending for GM and Tesla electric vehicles this year, unless Congress extends it.

You might want to consider a late-model used car instead of buying new. Jonathan Smoke, chief economist at Cox Automotive, points to record lease returns expected in 2018 and 2019, including more SUVs and crossovers than had previously been the case, so there will be more of these popular vehicles to choose from.

Also consider buying used from rental fleets: Former rental vehicles typically cost 5% to 15% less than the same model sold by used-car dealerships.

Car subscription services are getting attention. Participants can reserve vehicles for shorter periods of time than in leases, allowing members to try many different types and models. However, these plans are still quite pricey.