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US stock market daily report (August 13, 2014, Wednesday)

August 14, 2014, Thursday, 06:48 GMT | 01:48 EST | 11:18 IST | 13:48 SGT
Contributed by Millennium Traders

New car prices are expected to be under heavy pressure as the supply of used cars continues to rise. Prices on used cars continue to slide as the supply builds. In the decade that ended in 2007, U.S. new car sales averaged 16.7 million vehicles annually. The number of new cars sold during 2009 tumbled to only 10.4 million. During the following three years, new car sales have begun to rebound with 15.6 million sold during 2013.

New car manufacturers are facing increased pressure to offer more price incentives and discounts to maintain their stronghold on sales, over used car prices.

National Automobile Dealers Association forecasts a 7% decline in the average used-car price to just under $15,000 in 2016 from $16,025 in 2014. David Wagner, NADA analyst said, "This is a long-term, regular cycle and not a bubble," in reference to the current high prices for used-car prices. He believes used car prices have room to move, without significantly affecting new-car demand.

Tom Webb, chief economist for Manheim Auto Auction said, "As the wholesale prices decline with respect to new vehicles, clearly it's a negative. You can get in somewhat of a downward spiral."

Tommy Ogline, executive president of T James Motorsports, auto wholesaler on the East Coast said, "I do think used vehicle prices are falling and I believe its because of the opposite effect - because of all the new vehicles coming out right now. When people see the deals they can get on a new car, that's what sways them away from used cars." Tommy added that specialty pre-owned vehicles which he deals in, continue to hold their price strength right now, due to limited competition in certain markets.

TrueCar research firm estimates used-car prices will drop 5.2% by 2017. New car incentives currently average $2,700 per vehicle and are expected to rise 11% to nearly $3,000 into 2016. Larry Dominique, executive vice president of TrueCar said, "automakers are going to have to increase incentives more," in order to achieve annual sales above pre-recession levels of nearly 17 million new vehicles.

Dominique said the average age of vehicles on the road today tops 11 years and would move lower as newer-model used vehicles enter the market.

Because of the popularity of features as well as more-expensive new vehicles, new vehicle prices continue to rise with an average new vehicle price of $31,262 during 2013.

Pete DeLongchamps, vice president of Group 1 Automotive said, "There will be some shift in pricing, but I don't think it's enough to affect the market." While prices for used vehicles continue to drop, pent-up demand for new cars remains strong because so many people delayed buying during the recession. In its latest quarter, Group 1 reportedly sold as many used vehicles as they did new ones. Used vehicle sales accounted for 13% of gross profit for the firm compared with nearly 20% gross profit on new vehicle sales.

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