No doubt, dealerships are gearing up for Memorial Day sales extravaganzas with the goal of rolling plenty of vehicles over the curb.
TransUnion senior vice president and automotive business leader Brian Landau explained why used-car departments at franchised dealerships could be more active than their new-model showrooms as consumers take delivery of vehicles going into the unofficial start of summer.
“Certainly, there is waning demand following the buildup after the financial crisis,” Landau said during a phone conversation as TransUnion shared its latest auto-finance data. “People are not buying new vehicles in droves as they once did.
“But there is a shift from new-vehicle purchases to used-vehicle purchases, especially with the influx of late-model vehicles coming back into the showroom and people having more options to buy a fairly new vehicle at $15,000 less than if they bought a new vehicle,” he continued.
“If I’m getting a car that’s slightly used and I’m benefitting from the depreciation of that vehicle, I don’t necessarily finance as much. That’s where the growth is right now,” Landau went on to say. “There are consumers out there transacting, but they’re looking used vehicles, particularly late-model vehicles."
With consumers perhaps not taking on as much credit burden but choosing a used model, franchised dealers are left saddled with more significant financial obligations stemming from their new-model inventory.
And that inventory is stacked.
Edmunds experts reported on Wednesday that new SUVs and trucks are lingering longer on dealer lots than they did last year. According to Edmunds data, days-to-turn for midsize SUVs hit 76 days in April compared to 63 days during the same month in 2018. Days to turn for large SUVs reached 82 days, compared to 68 days last year.
Edmunds added days-to-turn for large trucks also surpassed the industry average at 87 days.
However, it doesn’t appear that automakers are slapping too much money on the hood to clear those new vehicles.
According to the latest installment of Guidelines from J.D. Power Valuation Services, automakers decreased incentive spending once again in April.
Power Information Network (PIN) data from J.D. Power showed incentive spending per unit fell on a year-over-year basis for the 10th consecutive month in April. Analysts pointed out that string comes after 54 months of increases.
In April, J.D. Power said incentive spending fell 6.8% to $3,561 per unit. Analysts added incentive spending as a percent of MSRP fell to 8.9%, receding below the 9% threshold for the first time since April 2016.
“Car shoppers can usually count on decent discounts over the Memorial Day holiday, but this year we’re anticipating some blockbuster bargains, including deals on SUVs and trucks,” Edmunds’ manager of industry analysis Jeremy Acevedo said in a news release.
“If you know that you want to buy a new car this year, this holiday weekend might be the best time to jump into the ring,” Acevedo continued. “Automakers are going to be scaling back production this summer to address weakening demand, and given how expensive financing has become, they won’t have the resources to throw as much cash onto other summer sales events this year.”