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The Three Year ‘Pinch’ Is Helping New Car Sales

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Call this another example of the boomerang effect from the auto downturn 3 years ago now helping out an industry on the rebound.

It’s the three year pinch in used vehicle supply that is creating a lack of options for car buyers.

So buyers who might have bought a 3 or 4-year old vehicle are instead expected to rotate over to the new car showroom. Essentially, the pinch in the supply of 3-year old used vehicle is expected to further fuel new car sales.

How much? That’s hard to say.

Estimates for the January auto sales range from 13.2-13.8 million vehicles, with most on wall street coming in at 13.5 million. That would be the same pace as December. Analyst Joe Amaturo at Buckingham Research, says the January sales pace usually drops 17% compared to December. So if the latest sales rate is equal month to month, it’s further proof industry sales are improving.

So why is the lack of 3-year old vehicles on the used car market good news for new car sales? Typically, people in the market to buy a new car or truck will also consider used models that are 3-4 years old. It makes sense, since a 3-year old car in good shape is likely still under part or all of its warranty and is often a decent option for those who don’t want to spend as much.

But Rod Lache at Deutsche Bank estimates the supply of 3-4 year old used vehicles for sale will drop by 5.7 million, or 19 percent. It’s partially because people owning those vehicles are hanging on to them longer. The lack of supply is also because back in 2008 and 2009, automakers started to drastically cut production and fewer were sold. As a result, the reduced number of used 3-4 year old vehicles for sale will command a higher price.

As we’ve talked about repeatedly, we are in the midst of an expected 2-3 year run where auto sales will surge as pent-up demand for new cars pushes people back into the showroom.

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