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New car sales are falling back to earth

Adam Allington Jul 3, 2017
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Demand for new cars appears to be softening. Last month saw the fifth-straight month of declines compared to the same month a year ago.

The June sales numbers will be released later today. After three years of record sales, the auto industry is falling gradually back to earth.

“Basically, you know, this party couldn’t last forever,” said Ed Kim, vice president of industry analysis for AutoPacific.

A big reason for the decline in sales is that pent-up demand from the Great Recession is largely fulfilled. And with prices for new cars also rising, Kim said people are keeping cars for much longer.

“Almost a third of new vehicle loans are above 72 months — that’s very significant,” Kim said.

To boost sales, carmakers are offering steep incentives, which Paul Eisenstein from the Detroit Bureau said can sometimes have the unintended effect of discouraging sales. 

“What that may do is wind up eating up profits, and get customers expecting ever-bigger financial incentives, so they hold off buying until next month to see if there is even more cash on the hood,” Eisenstein said.

Eisenstein said the renewed popularity of leasing is also creating growing market for used cars, which might also be holding down new sales. 

 

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