The U.S. auto industry will probably have to offer more discounts in order to keep up demand as prices for used cars decline.
As auto sales recover from their recession-era slump, the industry's supply of used vehicles has started to rise again, driving prices down, according to Reuters.
This will pressure new-car prices and raise the stakes for automakers, which have seen new-car sales increase the last 4-1/2 years.
To see annual sales rise above pre-recession levels of about 17 million new vehicles, "the automakers are going to have to increase incentives more," said Larry Dominique, executive vice president of research firm TrueCar Inc, according to Reuters.
TrueCar expects used-car prices will drop 5.2 percent by 2017, whereas new-car incentives now at around $2,700 per vehicle, will rise about 11 percent by 2016 to nearly $3,000.
The National Automobile Dealers Association estimates a nearly 7 percent decline in the average used-car price to just under $15,000 in two years from $16,025 in 2014, according to Reuers.
New-car prices are rising because of the popularity of pricey features and other expensive vehicles. They reached an average of $31,262 per vehicle last year and are expected to increase another 2 percent both this year and next, TrueCar confirmed.
U.S. new-car sales averaged 16.7 million vehicles annually in the decade that ended in 2007. They have dropped to 10.4 million in 2009. Demand doubled the next three years, and increased another 8 percent to 15.6 million in 2013.
It is expected to reach 16 million in 2014, according to Reuters.
A number of these cars will be resold as used, especially those coming off three-year lease deals. Dominique expects the average age of cars on the road, now topping 11 years, could drop as newer-model used vehicles hit the market.
Pete DeLongchamps, vice president of U.S. dealer Group 1 Automotive Inc, disagrees however.
DeLongchamps said recently that though used-car prices would continue to drop, demand for new cars remained strong because so many people delayed buying during the recession, according to Reuters.
"There will be some shift in pricing, but I don't think it's enough to affect the market," he said.
Though the auto industry, like U.S. automakers General Motors Co and Ford Motor Co, largely held back from increasing profit-sapping incentives after the recession, a number of analysts have questioned whether that will holdup due to pressures the companies will face to increase sales.
"As the wholesale prices decline with respect to new vehicles, clearly it's a negative," said Tom Webb, chief economist for wholesale car auction company Manheim, according to Reuters. "You can get in somewhat of a downward spiral."
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