Serves the Commercial Small Fleet Market of 10 – 50 Vehicles

Negative Equity Could Hinder New Car Sales

March 29, 2004

Thirty-eight percent of new-vehicle buyers have zero or negative equity in their trade-ins, up from 25 percent in 2001, reported the Power Information Network, an affiliate of J.D. Power and Associates. This lack of credit-worthy customers may diminish new-vehicle sales further after first-quarter sales of cars and light-trucks are projected to fail to reach automotive analyst’s expectations. Because of intense competition in the new-vehicle market, manufacturers are lengthening the life of loans to offer buyers lower monthly payments. The average length of a new-vehicle loan is now 58 months, up from 53 months three years ago, reports PIN. But because owners build equity more slowly with a long loan, they may find themselves in an “upside-down” situation—meaning they owe more on their trade-in than it’s worth-- when they purchase a new vehicle. The 2004 outlook for new-vehicle sales is mixed. In its industry report card released last week, Standard & Poor’s said that it expects this year’s sales to reach 16.8 million new cars and light trucks, tying 2002 as the fourth best sales year on record. Analysts expect March’s sales to be about four percent higher than last year’s, yet that figure is soft considering last year’s Gulf War jitters, the effect of recent tax cuts and the rebound of the economy, the Detroit Free Press reported. Analysts still anticipate U.S. automakers to post market share gains this year as the market is flooded with a higher than usual amount of new vehicles. Many of those new vehicles are just now hitting the market and gains are not expected in the first quarter, the Free Press reported.
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