Economic stability is forecast to drive the sales of big-ticket items like cars.
New York, NY (PRWEB) February 25, 2014
In the five years to 2014, the Used Car Dealers industry endured volatile swings in revenue. Because the industry relies strongly on consumers to drive revenue growth, fluctuations in disposable income dictate the direction of the industry. Therefore, when disposable income plummeted in the midst of the recession, industry revenue followed suit. Additionally, turmoil in the market for asset-backed securities eroded the balance sheets of auto financiers, triggering tightening of credit standards. With tighter credit standards, consumers found it difficult to finance a vehicle, hampering Used Car Dealers industry demand.
Nevertheless, disposable income rebounded in the latter part of the five-year period, along with looser credit standards. As a result, industry revenue is expected to increase at an annualized rate of 3.5% to $101.3 billion in the five years to 2014, lifted by a 1.6% increase in 2014 alone. Moreover, due to a shortage of used cars, selling prices are rising, thus benefiting profit margins for industry operators.
According to IBISWorld Industry Analyst Brandon Ruiz, "Used car dealers benefited from offering independent financing solutions during the downturn." While new car dealers rely on financing companies to fund consumers' purchases, used car dealers often offer in-house financing known as "buy here, pay here" (BHPH). Traditionally, customers who purchase vehicles on a BHPH basis have C- and D-grade credit ratings. Even customers with B-grade credit had difficulty finding affordable financing during the credit crisis. These customers often purchased vehicles from used car dealers on a BHPH basis rather than opting for traditional financing from new car dealers.
"The recession greatly reduced consumers' ability to purchase vehicles," says Ruiz. Unemployment and asset price declines, including for homes and stocks, cut into consumers' incomes and savings. Consumers with poor credit (a large portion of industry customers) have been among the worst hit. Consumers with D-grade credit spent $11.0 billion at used car dealerships in 2009, a 51.7% decline from 2008. Fortunately, relative economic stability is encouraging spending on used cars. For example, used car sales are expected to grow to 41.5 million vehicles in 2014, up 1.5% from 2013. The US economy will begin growing strongly again in 2014, and because car sales typically move with the business cycle, car sales are expected to follow suit.
For more information, visit IBISWorld’s Used Car Dealers in the US industry report page.
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IBISWorld industry Report Key Topics
The Used Car Dealers industry sells used passenger vehicles, including passenger cars, light trucks, sports utility vehicles (SUVs) and passenger vans. Used car dealers also provide financing and insurance services.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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