Fact Checked

Dealerships feel the strain as auto prices rise — and sales slow

Man driving his car, looking stressedImage: Man driving his car, looking stressed
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Auto sales are decelerating as Americans increasingly hold off on car buying —  and one big reason seems to be skyrocketing prices, a recent report shows.

New vehicle sales in the first half of 2019 are projected to be the weakest of any six-month period since 2013 — about 3.3% lower than for the same time period last year, the report from J.D. Power and Associates says.

The J.D. Power report also notes that new vehicle prices are set to reach an average of more than $33,000 in the first half of 2019, up 4% from 2018 and a new record.

And dealerships around the country are starting to feel the pressure, with vehicle inventory sitting around longer than in previous years, even when it comes to more popular models like SUVs and trucks, The New York Times reported.

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What’s going on with the vehicle market?

One theory for the slowdown is that new-car prices have simply gotten too high for a lot of people to tolerate. Another contributor could be that vehicles are simply lasting longer than vehicles of the past, making it easier for drivers to put off car shopping and stick with their older wheels longer, The New York Times noted.

Adding to the mood: Among those who have bought new vehicles, many are struggling to pay for them. Data from the New York Federal Reserve going back to the end of 2018 show that delinquent auto loans are on the rise.

This could be why more people are skipping buying altogether — or are opting to buy used cars instead. Used car sales from franchise dealers are on track to rise about 9% for the first half of the year, according to J.D. Power.

How could vehicle sales impact the economy for the rest of 2019?

While reduced demand could push dealers to cut vehicle prices, lower vehicle sales aren’t a great sign for the economy.

According to The New York Times, vehicle sales make up the biggest chunk of U.S. manufacturing — about 3% of the total gross domestic product, or GDP, a popular measure of the size of the economy. So a slowdown in the auto sector could have big consequences for overall U.S. economic growth and the millions of Americans who work in the auto industry.

In the short term, it’s a good idea to keep an eye on interest rates. The Federal Reserve earlier this year indicated it didn’t plan to increase interest rates any time soon. And it’s possible that when the Fed meets at the end of July, it might actually lower rates.

Lower interest rates could mean better rates on auto loans, potentially revving up Americans’ interest in buying new cars later this year and easing the stress on car dealerships.

About the author: Paris Ward is a content strategist at Credit Karma, providing readers with the latest news that will aid their financial progress. She has more than a decade of experience as a writer and editor and holds a bachelor’s… Read more.