NADA Used Car Guide Looks at Vehicle Pricing and Market Trends
Since price is a key factor in shopping for a new or used car, SUV, or pickup, it’s helpful to understand how automakers and finance providers—including banks and credit unions—determine prices for new and used vehicles. In the white paper, the NADA Used Car Guide team analyzed how consumer credit and new-vehicle stickers relate to transaction prices, both now and during the past five years. Trends in incentives, rebates, and negative equity (the amount an owner still owes on a trade-in) and how they impact pricing are discussed.
Highlights from “An Updated Pricing Approach for New-Vehicle Financing” are recapped below.
Points to Know about Consumer Credit:
- A consumer’s credit profile or history is the primary guide in determining loan and lease terms for a new or used vehicle.
- The lender (auto finance company, credit union, or bank) may finance up to 110% of a vehicle's retail price for consumers with good credit, but only up to 90% for consumers with a poor credit record.
- Consumers with sterling credit may get lower interest rates for new- and used-vehicle financing deals.
Best Approach to Gauging a Vehicle’s Price:
- Lenders often determine used-vehicle values based on analysis of actual transaction prices (what the car sells for at the dealer) rather than manufacturer’s suggested retail price (MSRP), or dealer invoice—the price that the automaker charges the dealer for a vehicle.
- Transaction prices, such as those based on data collected by the Power Information Network® (PIN) from J.D. Power, vary with supply and demand, the time of year, age, and mileage for a used vehicle.
Pricing and Market Trends Based on J.D. Power PIN Data:
- MSRPs for new vehicles rose just over 10% from 2011-2015.
- Cash rebates (discounts) increased 8.4% during this 5-year period.
- Consumer cash incentives rose by 2 points from 2011 to 2015.
- In 2015, new-vehicle transaction prices averaged 91% of MSRP—down from 93% in 2011. As of March 2016, prices dipped to 89% of MSRP.
Segment-Level Pricing Illustrates Used-Vehicle Opportunities:
- Compact Car segment (i.e., Honda Civic, Toyota Corolla, and Ford Escort) transaction prices averaged 90% of MSRP in 2015—down 5 points from 2011.
- Small Car (i.e., Nissan Versa, Hyundai Accent, and Chevrolet Sonic) transaction prices fell even more—averaging a 6-point drop from MSRP in the 5-year period.
- In contrast, Midsize Pickup (i.e., Toyota Tacoma, Chevrolet Colorado, and Nissan Frontier) transaction prices increased 4 points during 2011-2015.
- New Midsize Car (i.e. Toyota Camry, Nissan Altima, and Honda Accord) transaction prices and the amounts that were financed held steady from 2011-2013, but in 2014, loan amounts began increasing.
- Automakers spent an average of $3,530+ on Midsize Car incentives last year, which was close to the amount spent to promote more expensive Premium Midsize SUVs (i.e., Lexus RX-Series, Mercedes-Benz M-Class/GLE, and Acura MDX).
Future Market and Pricing Trends with J.D. Power Insight:
- More challenging times are ahead with a slow-down in U.S. new-vehicle sales growth to 2% in 2016 and just 1% in 2017, according to J.D. Power auto forecasting partner LMC Automotive, along with an increase in incentives due to hotter competition, which is good for shoppers’ budgets.
- Incentive spending by automakers rose 10% in the first 3 months of 2016 vs. the same period in 2015.
- MSRPs rose 1.5% in the first 3 months of 2016 vs. the same period in 2015.
- Transaction prices during this period were up by only 0.7%.
- Nearly one-third of new-vehicle sales in the first quarter of 2016 included a trade-in with negative equity—up 2 points from 2015.
- The value of a trade-in has been hurt by the higher supply of used vehicles, which has led to a higher rate of depreciation.
- Used-vehicle prices fell by more than 3% during the first 3 months of 2016 vs. a year ago, and NADA Used Car Guide expects prices to fall by 5%-6% by the end of 2016, which is good news for consumers.