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In this Nov. 28 photograph, long lines of unsold 2019
Pilot sports-utility vehicles sit at a Honda dealership
in Highlands Ranch, Colo.
Associated Press |
DETROIT — The warnings flashed a few years back: 2019
was to be a year of the “lease tsunami.”
A glut of cars, trucks and SUVs leased a few years ago
are set to come off three-year leases and return to
dealer lots, driving down used car prices. In 2019,
we’re expected to hit a peak of 4.1 million returns of
leased vehicles.
The threat of a tsunami remains, but so far experts say
the impact might not be dire as experts and Wall Street
analysts initially forecast.
Used car prices look like they might be able to hold up
fairly well, as the job market remains strong and the
U.S. economy continues to grow.
“What we’re seeing is we’ve got a hot economy and all
these off lease vehicles are being absorbed,” said
Charlie Chesbrough, senior economist for Cox Automotive.
Cox owns carshopping websites including Kelley Blue Book
and AutoTrader.
Sure, risks remain. Wild swings in the stock market, a
federal government shutdown and news about layoffs at
big companies, including General Motors, all can erode
confidence. In Michigan, who doesn’t know somebody who
is worried about losing a job?
Another lurking unknown: How exactly will your tax
refund compare to last year’s payout?
Tax refund checks play a big role in selling used cars.
A $2,500 or $3,000 income tax refund can be a sizable
down payment, particularly on a used car.
The peak period for used vehicle sales typically follows
when tax refunds have been received by most households,
said Jonathan Smoke, chief economist for Cox Automotive.
Now, there’s a growing concern that some households
could receive a far smaller refund — or might even owe a
bigger tax bill than they’d normally expect — because
they received more money each week in 2018 in their
paychecks, thanks to changes in the tax withholding
tables under the new federal tax law.
A Cox Automotive analysis of employee withholdings
indicated that the amount being withheld from each
paycheck for taxes is even less than the tax rate
reduction should have produced.
Many people may not have been withholding enough in
taxes out of their paychecks in 2018 to even cover the
new, lower tax rate, Smoke warns.
As a result, there’s a sizable risk for a surprise in
the spring when it comes to seeing smaller tax refunds.
While workers were encouraged to review how much money
was being withheld and perhaps adjust their W-4 forms to
have more money withheld, most people didn’t do that,
according to H& R Block and others.
If the refund is far smaller, experts are concerned that
some consumers may be far less motivated to go out and
buy a used car.
And, of course, we don’t really know if the federal
government shutdown will lead to delays of some sort
when it comes to issuing federal tax refunds.
The government shutdown is making the “situation even
more murky,” Smoke said.
Right now, the strength of the used car market could be
used to benefit some consumers who are seeing their cars
and trucks come off lease.
Consumers who are at the end of a lease might want to
review the residual values — or the expected value at
the end of the lease.
Brad Korner, general manager of Cox Automotive Rates &
Incentives in Ann Arbor, said consumers can use
information that’s available online to their advantage
to understand what that leased vehicle is now worth.
Online sites, such as Kelley Blue Book, can help.
You’d also want to review your lease contract, Korner
said, to see the estimated residual value for your
vehicle.
If the market value now is higher than that residual
value, it may be possible to negotiate a better deal if
you’re going to lease or buy another car.
Used-car prices saw some drops during parts of last
year, but overall prices increased, according to data
from Manheim, a Cox company specializing in auto
auctions.
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