This Week in Car Buying: Used vehicle prices down; SUVs next big thing for Millennials; Ford's new look at credit; Toyota offers key protection
There are plenty of deals on new 2018 and 2017 models on dealer lots, but it might also pay to wander over for a look at the Certified Pre-Owned (CPO) inventory as well as a the supply of used vehicles continues to grow and prices drop. And while the deals are tempting, this downward pressure on prices is also having an adverse effect on what your trade is worth, further complicating the options available to the average buyer. The bottom line is, though, it’s a buyer’s market.
Driving this surge in used vehicles is the pace of the market over the past five years, where volume records were being set. Sales nearly doubled from the low point in 2008-2009 and now those 3- to 5-year old cars are coming off lease or being traded by owners who want something newer. Some industry estimates put the drop in average used vehicles as much as 17 percent over the last year and that used cars are actually depreciating at twice the rate of 2014. This significant drop in value is having an effect on the new car market, where buyers are seeing a wider gap between stepping up from a pre-owned to a new vehicle. Consequently, incentives are more generous as makers look to buoy sales.
But before taking advantage of these lower prices, it behooves shoppers to find out what current values of their trades by checking the values here at Kelley Blue Book. Also, a useful tool is our Instant Cash Offer, where you can get a guaranteed offer for trade-in value or outright purchase of your current car, which in effect, sets a floor on that vehicle’s value.
The key to maximizing the value of your trade and getting the best possible price on your new vehicle will be critical in making that move. Because of the plunge in values some owners may actually owe more on the car than what’s worth. The Federal Reserve estimates that auto loans account for between 10 and 23 percent of a person’s total financial obligations. Outstanding loan balances, according to the St. Louis Federal Reserve, hit $1.1 trillion in May, about double the $698 billion outstanding in 2010 and significantly higher than the previous record in 2005 of $825 billion.
This glut of used vehicles is also having a huge impact on fleets. Daily rental companies like Hertz and Avis are looking to sell more of their used vehicles directly to consumers where they can maximize their margins rather than using wholesale channels to dealers. So, in addition to checking out a dealer’s CPO lot, shoppers should also take a look at what the daily rental companies have to offer for sale.
SUVs next big thing for millennials
Citing demographic information showing that Millennials moving to suburbs and having kids, Ford is predicting an upswing in full-size SUV sales, which not so coincidentally comes as the automaker is on the cusp of introducing the all-new 2018 Expedition.
While previous studies showed this younger generation saddled with college debt and living with their parents, more recent data indicates more of them are moving into higher paid jobs in the workforce, marrying, moving to the suburbs and having children. This move to more spacious surroundings also means that larger vehicles will become the norm.
“Millennials are delaying major life decisions such as getting married and having kids, but today they are the largest generation of homebuyers in the market,” said Dr. Svenja Gudell, chief economist at Zillow, which did a study for Ford on these trends. “Despite the urban lifestyle Millennials may have sought in their twenties, they’re nearly as likely as older generations to settle down in the suburbs. In many ways, what we’re seeing is that Millennial homebuyers have preferences that are very similar to their parents’ and grandparents’ generations.”
According to Ford, the one cohort that currently favors mid- and full-size SUVs over cars is the 35 to 44 age group, which includes the oldest Millennials and youngest Gen-Xers. And with high birth rates among this group, the automaker expects the demand for these vehicles to grow. These two classes of vehicles grew 9 and 11 percent respectively, while sales of smaller SUVs grew just 4 percent. Ford expects all SUV sales to grow to account for more than 45 percent of industry volume, some 850,000 more of these vehicles per year.
Ford’s new look at credit
Getting these younger buyers in vehicles is also responsible for Ford’s new approach to assessing credit risks. The automaker said it is looking beyond traditional credit scores to find new ways to rate the risk of lending money or leasing cars to potential customers as a way of growing sales.
Ford teamed with ZestFinance to evaluate criteria other than credit scores to determine whether or not a prospect is qualified for a loan or a lease. This modeling, which takes into account payment history on things like cell phones, pulls in more data points from an applicant’s past credit activity to determine whether or not they are eligible for financing.
“At Ford and Ford Credit, our primary goal is to serve our customers,” said Ford Credit Chairman and CEO Joy Falotico. “For this study, we worked with ZestFinance to harness the capability of machine learning to analyze more data and to analyze our data differently. The study showed improved predictive power, which holds promise for more approvals, enhanced customer experiences and even stronger business performance, including lower credit losses.”
Toyota offers key protection
As cars become smarter, so have the keys that control them. The keys and fobs that contain anti-theft chips and remote control features are expensive to replace, as anyone who has lost one can tell you. Toyota recognizes that fact and now will offer key replacement as a new coverage in its extra cost warranty programs.
“Today’s vehicle technology is great for consumers,” said Karen Ideno, vice president of product and marketing for Toyota Financial Services. “Unfortunately, this sometimes comes with a high cost to replace. We know key replacement can be stressful for our customers and we’re happy to now offer a solution.” The new Key Replacement coverage will be offered by both Toyota and Lexus dealers.
The program includes replacement of the key/remote if lost, damaged or stolen, up to $800 per occurrence. Lock-out assistance in opening the vehicle is also included, as well as towing, both providing up to $100 per incident. The coverage also reimburses taxi, public transportation or car rental reimbursement of up to $75 and replacement of other non-programmable keys on the key ring of up to $250 per covered key claim with a limit of three occurrences. Key Replacement is now part of the Tire & Wheel Coverage currently being offered by Toyota and Lexus and will be offered as a standalone option later this year.
In the market for a new car? Explore these useful tips on how to get the best deal: