This Week in Car Buying: Sedans in freefall; New liftbacks and wagons to bow; Subprime lending no big deal; Leasing, used car sales up
Traditional midsize 4-door sedans have taken it on the chin with sales dropping 27 percent during August when compared to year-earlier figures. According to Automotive News, the trend has been accelerating as the year has worn on, with first quarter sales down only 3.4 percent, then 13 percent in the second quarter and now 21 percent year to date.
Sales of mainstream cars like the Ford Fusion, Nissan Altima, Hyundai Sonata and Kia Optima are down by about a third, while slower selling models like the Chrysler 200 are off by as much as two-thirds. Fiat Chrysler Automobiles (FCA) has announced that it is halting production of both the Chrysler 200 and its compact Dodge Dart sedan this fall. Further underscoring these changes is the fact that the Toyota RAV4 outsold the Camry for the first time in August. Honda is also selling more small SUVs than midsize sedans, with the CR-V edging the Accord through the first eight months of the year, if only by 200 units.
Slow sedan sales means that bargain hunters will have a better chance in snagging a deal on a 4-door rather than a hot selling crossover SUV this fall. Although the Labor Day sales events are over, rebates as high as $2,500 to $3,000 can be found on sedans of all sizes, from compact through full-size.
In the long run, the decline in the popularity of sedans is part of the cyclical nature of the auto industry. In the 1970s and ‘80s, coupes routinely sold in the hundreds of thousands before being replaced by the 4-door sedan as a vehicle of choice. Now with the popularity of crossover SUVs, these tall car-based people movers are becoming the norm. Yet, the sedan will survive as a body style, much like minivans have. After replacing the family station wagons, virtually all manufacturers had one before its popularity died out in favor of trucks and SUVs. Still, the minivan remains a significant enough segment in which several automakers still compete. While FCA is pulling the plug on the 200 and Dart, expect other major manufacturers, especially Honda, Toyota and Nissan, along with Chevrolet and Ford to remain active.
Liftbacks and wagons to bow
While it may be rough sledding for sedans, two European manufacturers are readying liftback and wagons for possible U.S. launches. Ahead of the Paris Show, Audi has taken the wraps off the A5/S5 Sportback, which is based on its midsize coupe. The 4-door hatch, which Audi is mulling as an addition to its U.S. lineup, is viewed as a less expensive alternative to the A7. Audi will also be adding the A4 Allroad, an off-road variant of the A4 Avant wagon, to its U.S. lineup as well.
Meanwhile, Volvo has been granted a U.S. trademark for its V40 wagon, which may also be headed to our shores sometime in 2017. The resurgence in liftbacks, hatchbacks and wagons in the U.S. market is attributed by observers to the popularity of crossover SUVs.
Subprime lending no big deal
While concerns have been raised about subprime lending as the next bubble set to burst, Experian reports that the share of these higher-interest, riskier loans and leases have dropped to 22.8 percent of the total market, down from 23.3 percent a year earlier.
“Automotive lenders seem to be keeping cool heads when it comes to how much risk they are willing to take with subprime and deep-subprime customers,” said Melinda Zabritski, senior director of automotive finance for Experian. “Yes, subprime and deep-subprime loans are growing, but the entire market is growing from a volume perspective across all risk tiers. In fact, the subprime loans have actually dropped as a percentage of the total market. That, combined with only a slight uptick in delinquencies, makes it clear that the sky is not falling.”
While 30- and 60-day delinquencies are up slightly (up .03 to 2.22 percent for the former and only .07 to .62 percent on the latter), lenders are issuing five times more loans to superprime buyers (those with credit scores of 781 to 850) than to subprime customers.
Still, average loan amounts continue to climb, a reflection of higher transaction prices. New vehicle loans average $29,880, up 5 percent in the second quarter from a year earlier.
Leasing, used car sales climb
As a reaction to the higher transaction prices, Experian is also seeing an increase in leasing and used vehicle sales as a strategy to keep car payments in check. Leasing is at record levels, topping 31 percent of the total market in the second quarter. Even used vehicle leasing, which is a small slice of the pie, is growing, moving up from 3.26 to 3.71 percent of pre-owned vehicle transactions.
Used vehicle loans in average dollar amount and share of overall lending is climbing as well. The average used vehicle loan stands at a record $19,101, up from $18,671 a year earlier. Loans for pre-owned vehicles accounted for 55.61 percent of all loans issued during the second quarter of 2016.
Many of these loans are being taken out by superprime borrowers, Experian’s Zabritski noted. “One of the biggest trends we continue to see is the shift to used vehicles by customers with excellent credit. As vehicle prices continue to rise savvy consumers are looking for ways to control costs. That appears to be pushing more customers toward used vehicle sales.” The company found that the average used vehicle monthly payment is $364, up only $3 in a year, while the average new car payment is $499, up $16 from 2015 levels.
Blacked-out trim levels continue to spread to new models as evidenced by the launch of the 2017 Ram 1500 Night Package. It’ll be available on all Regular, Quad and Crew Cab models.
In the market for a new car? Explore these useful tips on how to get the best deal: