Pub. 16 2017-2018 Issue 4

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 35 new jersey auto retailer W W W . N J C A R . O R G around $4,000 per unit at the end of 2016 and above $4,000 per unit by the end of 2017. This high incentive spending is detrimental to the long-term health of brands and could damage resale values in the long-term. Manufacturers are aware of this and we expect that they will better align their production with demand in 2018, although this will take time. We expect incentives to run near their 2017 levels for at least the first half of 2018. One of the big stories of the next few years will be the flood of off- lease vehicles returning to market. We expect to see 3.4 million lease maturities in 2017, up 1.1 million units from 2015. Tight used-vehicle supply following the recession and low interest rates led many vehicle consumers to buy new in the past few years. Now with interest rates rising, and the price gap between a new and nearly-new vehicle widening, many consumers will be tempted to buy used. Fortunately, franchised dealers have the expertise to sell these nearly new vehicles. A Look At Foreign Markets China has been the largest new vehicle market for several years now and, with each passing year, the preferences of the Chinese market will have more and more influence on the new vehicles produced globally. Coincidentally, light-trucks are also more popular than their car counterparts in China and this bodes well for the American consumer when it comes to vehicle choice. In 2017, Chinese consumers bought 25.4 million new light-vehicles, an increase of 3.2%. However, growth is slowing as just one year earlier sales grew at a pace of 16.1%. We expect the rapid growth of previous years to cool as China ends its favorable tax credits on vehicles with sub-1.6 liter engines. Tax rebates and the ability to skip the line when registering will continue for electric vehicles in 2018. Pent-up demand has been met and we expect 2018 to be a buyers’ market. China is also in the middle of developing a na- tionwide used vehicle sales network. In the past, buying and selling used vehicles in China has meant jumping through a lot of hoops. Dealers and the Chinese Auto Dealer Association are working on developing tools to help strengthen the credibility of used vehicles across the country. Although it is still in its early stages, the used vehicle market is still quite large and growing at a steady clip with sales of 12.4 million units in 2017. Turning to Europe, uncertainty remains regarding the effects of Brexit on U.K. vehicle sales, as well as vehicle manufacturing. Light-vehicle sales were down 5.7% in the U.K and business and consumer confidence has fallen since the Brexit referendum, caus- ing many to reconsider making large asset purchases. For 2018, we expect new vehicle sales to continue their decline in the U.K. The European auto market has recovered well since the recession and sales are nearing pre-crisis levels. However, headwinds stemming from tighter emissions regulations are likely to slow growth in the near-term. Patrick Manzi is the Senior Economist at the National Automobile Dealers Association (NADA). He can be reached at 703.821.7293 or via email at pmanzi@nada.org .