New car sales are expected to soften in the second half of this year despite more dealer incentives. That would be a blow to local tax collections. There’s a wave of new vehicles coming off lease that could lure new car buyers to better deals. Leasing is also expected to be soft.
So far this year, auto sales are matching 2017’s pace but there are some potential trouble spots and well as lending headwinds.
One of the economy’s red flats Wells Fargo Chief Economists John Silva pointed out in Johnson City earlier this month was the rising rate of sub-prime auto loan defaults. Bloomberg is reporting that growing numbers of the subprime lenders are getting out of the business while banks that have been lending to companies that provide subprime finance and private equity owners are cutting off funding due to slim margins. As banks tighten the car loan purse strings, dealers and credit unions should pick up a larger market share.
Higher auto loan rates are also on the horizon. Kiplinger predicts rates will rise a half-point this year for car loans, “causing new-car payments to increase by $7 or so per month. The average new-car payment will be about $525 monthly for a $31,000 loan at 5.5%. For used cars, the average payment will be about $390 for a $20,000 loan at 9.5%.
SUV demand is expected to remain high but keep an eye on gas prices. They’re heading up and analysts say it’s not just a seasonal thing. Currently, SUV’s have a 45% market share, but that could slip as the cost of filling up the tank hits the $50 mark.
Car dealers are not the only ones watching gas prices. Talk about gap-price induced staycations is on the rise and the tourism industry is closely watching. That’s a double opportunity for local tourism attractions like the Off the Grid ziplines in Elizabethton, the growing interest in Southwest Virginia and Northeast Tennessee biking trails and kayaking on local rivers. The first opportunity is the activity itself, but equally important is the number of locals who use them talk about it to friends and neighbors.