Used Cars See New Popularity

ADVERTISEMENT

No doubt the economy has impacted the new car market. But have auto shoppers stopped looking at new cars altogether? Not quite, but their slide into what one auto website giant calls the “substitution effect” should send shivers up the spine of auto makers around the globe.

But some car makes are fighting back, using old-fashioned psychology to get back into the game.

Edmunds.com is out with some new data that shows “significant evidence” that the recession has turned new-car shoppers into used-car shoppers.

That’s not such a big surprise – common sense dictates that consumers tend to scale back on big purchases during tpugh economic times. The data supports that theory. According to Kelley Blue Book, car buyers are about twice as likely to use cash to pay for their new ride rather than finance the purchase, than they were only three years ago.

In addition, the Kelley study of 338 car consumers says that 67% of them want a used car over a brand new set of wheels. Overall, 62% of the survey respondents said they wanted to pay $15,000 or less for a new car purchase, which won’t be received as good news in Detroit, Berlin, and Tokyo – homes to some of the world’s largest car makers.

Consumers, it seems, could care less how the big car companies feel about it. "In-market car shoppers are taking a decidedly conservative approach to car buying right now, which we think can be directly attributed to low consumer confidence in the current economy," says Kelley Blue Book market analyst James Bell. "It seems people are re-assessing their financial situations and deciding to spend less, buy used and pay more often with cash.”

The Edmunds data is well worth reviewing, primarily for the underlying reasons why American car buyers have fallen under the spell of what Edmunds calls the “substitution effect.”

The auto website giant used page views to measure the attitudes and emotions of new car buyers. According to Edmunds, up until 2008 “new car” page visits significantly outpaced the page views for “used car” page views. Fast forward to 2010, and Edmunds sees an about-face among potential car buyers. Now, used-car page views outpace new-car page views by 40%, Edmunds reports. – meaning that even browsers and online tire-kickers aren’t even bothering to check out new cars while shopping for a vehicle.

The demographics go right up the income ladder, too. As part of the Edmunds survey, analysts used recent buying activity for the relatively downscale 2010 Ford Taurus. What they found was interesting: In 2006, Edmunds says, only 4.6% of luxury car buyers “traded down” to a Ford Taurus. But four years later that number tripled to 12.6%.

Edmunds pointed out that Ford (Stock Quote: F) was way ahead of the game, implementing some design changes to the 2010 Taurus model that might appeal to more affluent customers looking for to “downsize with dignity,” for lack of a better expression.

“Ford’s effort to move the Taurus upmarket with the 2010 redesign was clearly successful, and in part, the company must attribute that to the timing of the launch,” said Edmunds.com Senior Analyst Karl Brauer, who authored the report. “It’s obvious that many luxury buyers found the new model a suitable substitute for their premium vehicles at a much more recession-friendly price.”

Edmunds reports that Hyundai and Kia have also upgraded their “middle class” models, to make them more appealing to car buyers who’ve fallen under the spell of the ‘substitution effect.” Both companies doubled their trade-in rate from buyers of luxury car brands, Edmunds reports.

That’s no accident, and it’s exactly how non-luxury car makers will likely market their vehicles to the public  - especially the financially well off. If you’re in the market for a new car, but looking for a lower price, don’t be surprised when your sales contact starts using terms like “near luxury experience” in the same breath as “lower price.”

In the post-recession world, luxury has gone downscale in the new-car market, with car makers betting on the fact that former high-end buyers will rationalize the purchase under the “substitution effect.”

Or perhaps more colloquially, it’s a combination of saving money and saving face, and more Americans are buying into this notion to get a new set of wheels.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

Show Comments

Back to Top