NADA: Cash Incentives Reduce Used-Car Value More than Finance, Lease Incentives


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    NADA says that cash incentives on new vehicles reduce the value of used vehicles more than finance and lease incentives. | December 05, 2013

Just the Facts:
  • A new report by the National Auto Dealers Association shows that cash incentives on new vehicles reduce the value of used vehicles significantly more than finance and lease incentives.
  • According to NADA, a new-vehicle cash incentive of $1,000 reduces the price of a used vehicle by $563.
  • NADA says the same $1,000 applied to finance and lease incentives on a new vehicle reduce the value of the used vehicle by $165 and $89, respectively.

McLEAN, Virginia — A new report by the National Automobile Dealers Association shows that cash incentives on new vehicles reduce the value of used vehicles significantly more than finance and lease incentives.

According to NADA Used Vehicle Price Report: Incentive Analysis and Impact , a new-vehicle cash incentive of $1,000 reduces the value of a 1-year-old version of the same model by $563. In comparison, $1,000 applied to a finance incentive would lower the used vehicle's price by $165, and the same amount on a lease incentive would reduce the value by $89.

And the trend continues over time. According to NADA, a $1,000 incentive on a new vehicle reduces the value of a 3-year-old model by $381 and the price of a 9-year-old model by $133.

"This pass-through effect means cash incentives continue to exert a sizable negative influence on prices far removed from more recent model years," said Jonathan Banks, executive automotive analyst at the NADA Used Car Guide.

Banks noted that various incentives resonate differently among consumers, so their respective impacts on used car prices vary.

"By comparison, in many cases it's more difficult for a consumer to translate the savings from finance or lease incentives, and as a result, the power to sway consumer demand — and negatively affect used prices — isn't as great on these incentive types," Banks said.

Looking ahead, Banks said: "While we expect to see incentive spending increase moderately in 2014, a prudent discount mix and a commensurate rise in MSRPs will keep new vehicle transaction prices from falling, and this, in turn, will mitigate downward pressure on used vehicle prices."

Edmunds says: Clearly, cash incentives have a significant positive impact on consumer spending, but this report shows how those incentives affect the value of used vehicles.

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