Rising new-vehicle prices are causing lenders to extend terms and are pushing more consumers to the used market amid attractive off-lease deals, Jessica Caldwell, executive director of data strategy at Edmunds, told Auto Finance News.
Average January new-vehicle prices came down 1% to $36,115 from record highs in December, but year-over-year prices were up, according to Edmunds. The average cost to finance rose 2.1% year over year to $524 a month, which is pushing lenders to extend terms to reduce monthly payments.
“Longer loan terms have been quite a trend for a few years,” even when vehicle prices were lower, as dealers attempted to maximize profits, Caldwell said. Average term rose to 69.2 months up from 68.9 during the same period the year prior. The drop in price month over month is attributed to holiday deals, according to the report.
January sales are driven by necessity, which disproportionately caused luxury sales to fall. Rising new-vehicle prices make the excess volume of off-lease returns even more attractive, Caldwell said.
The 4 million vehicles leased three years ago will be returning to market this year, and even more are expected to return in 2019.
“[When there is an] oversupply and market prices are noticeably lower than what you are [already paying], people may make that switch to the cheaper [off-lease] vehicle,” Caldwell said. “We haven’t seen that a lot yet, but … it’s the beginning of that trend.”
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