Although used car prices have been declining recently, payments on new vehicles reached a fresh all-time high in Q4 2023, indicating that high interest rates are still dragging on consumer’s wallets despite the relief from used car prices. With that in mind, a new study has found that purchasers of new vehicles are being pushed to their financial limits.
According to a report from Edmunds, despite improved inventory levels and sporadic discounts, new vehicle prices remain elevated, with high interest rates only serving to make the entire ordeal more challenging.
“High interest rates continued to be a heavy drag on new-vehicle sales growth in the second quarter,” Edmunds Head of Insights Jessica Caldwell noted in a prepared statement. “In theory, improved inventory and growing incentives should paint a more consumer-friendly picture of the market, but the reality is most Americans can’t buy their cars with cash, and increased borrowing costs continue to be a major roadblock when buying a new vehicle.”
This study featured several notable findings for elevated new car prices, including:
- Ongoing elevated interest rates – the average new vehicle APR in Q2 2024 climbed to 7.3 percent from 7.1 percent in Q1 2024, marking the sixth consecutive fiscal quarter that new vehicle APR figures stood above seven percent.
- Longer loan terms—In Q2 2024, roughly 70 percent of new vehicle loans had terms over 60 months, with an average of 69 months.
- Consumers are putting less money down and seeing monthly payments rise to all-time highs—the average new vehicle down payment stood at $6,579, contributing to an all-time payment high of $740 per month.
- $1,000 monthly payments near record levels—the share of consumers taking on loans of $1,000 or more was 17.8 percent in Q2 2024, just shy of the record 17.9 percent share in Q4 2023.
“If all goes as CDK says it will, shoppers can hopefully expect business as usual – and less pen and paperwork – at their local car dealer this weekend,” Edmunds Director of Insights Ivan Drury remarked. “There may even be added incentives for dealers looking to make up ground on lost sales the past few weeks. But while the transaction may be smoother, finding good deals still takes hard work. The advice for locking in a good deal remains the same: Do your research before you step foot in the dealership. And while incentives are growing and those low APR offers look enticing, make sure they are for a length of time that makes a payment palatable for your budget.”
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Comments
Don’t kid yourselves. It’s not the interest rates, the prices themselves are way too high.
It is a combination of the two.
1. Interest rates are high because inflation is through the roof. It is something that we have not witnesses in over 40 years!
2. As far as auto prices, if people would refuse to pay these astronomical prices, they would stagnate and come down. I understand that people need forms of transportation, but having to buy new and have the latest and greatest is why these prices continue to climb year after year. I collect GM performance vehicles. What do I do? I have a specific Chevrolet dealership that I have dealt with for quite some time. I wait until a Camaro or Corvette is traded in with less than 5,000 miles on it (typically only one year old), then I snatch it up for $$$ thousands less. I allow the first guy to take the hit on the price. I’d rather pay less and get more. I would think that everyone would want the same. I suppose not. 🙁
Well said. It’s the combination of high interest rates and declining used vehicle (trade-in) values that equate to making a new purchase tougher. And yes, before recently, buyers were spending way beyond their means. But the second quarter results show that moderately priced vehicles are the sales increase leaders, finally. The automakers won’t increase incentives because they’re still wallowing in their troughs following the free reign they had in the pandemic. Plus, they have to pay for the absurd “EV Pivots”, somehow. I hope it all comes crashing down, hard.
Trade in value, seems odd, but my neighbor got an insane high amount for an old used mini van from Tesla, along with unusually low interest rate. Obviously they are trying to shift the market.
My interest rate for a car in late 1990’s was 13 and 16 percent. I have good credit and good job, so no. In times when everyone says the economy is great, houses are about 8 and cars 10 to 13. Where I am, so many people driving newly purchased cars, I cannot understand it. Really crazy ,things must be awesome for quite a few people, at least where I am.
Car prices are higher, that is for sure. Unfairly so
I’m not sure I’d call rates that high yet. I think excellent credit person gets around 8 for a car loan. But to me, unless absolutely desperate, one should never do a loan on a depreciating asset like a car. Pay cash for whatever you CAN afford. What has happened is interest rates fell to near zero which is nonsensical. Always ask yourself, would you part with the money for the interest rate? The fed got way too accommodating and people started to think free money was the norm. It is not. We are really just back to normal numbers. 60’s had 5.25% passbook savings, 80’s had 18% mortgages. The norm is what it is.
no its not. there is virtually no difference between 8% and 10%……….. there is a difference between 0 and 10 ofc but 2% never changed anything. anybody who tells you that is coping.
Budgets were stretched when dealers started selling vehicles by “Low monthly payments!” and not by actual price.
Which was a while ago.
GM is losing cash on ev s so they jack up prices on ice units.
On the price side , particularly with pickups, the manufacturers force lots of top trim, fully load, units on the dealers. Just try and find a base level trim, or so called utility truck (RWD, short cab w/full size bed, cloth or vinyl seats, maybe AC but no high end 50 million speaker 1000w infotainment system), on the lot.
Manufacturers better wake up and do the numbers. Selling more inexpensive vehicles rather than a tiny amount of garage queens will keep them in business.
Many dealers have 2024 trucks by the dozen when they would normally be closing them out, while also having 2023s and even 2022s sitting unsold.
The working guy NEEDS. a reasonably priced pickup or he will keep driving his old clunker until the wheels fall off.
Let’s not forget the insane UAW contracts automakers signed recently.
Study shows car prices to be stretching American’s budget? You don’t say? It’s GREED and absolutely no concern for consumers. If manufacturers and/or dealers cared one red-cent for consumers, they’d at least provide more affordable offerings. But since they only care about themselves, they offer only overtech-ed vehicles, and mostly only high-end, high profit, ones at that. Further, you get manufacturers like Ford and GM implementing cost-saving measures, such as offering one-cab configurations, saving THEMSELVES money, but not passing anything on to the consumers. GREED.
Seems like the Inflation Reduction Act is not working out too well….
Gary: Biden & Congress were between a rock and a hard place. If they didn’t send out $ to stop bankruptcies and layoffs due to COVID and its aftermath, they were “uncaring”. If they did send out $, then they were increasing the national debt and were spendthrifts. It was a no-win situation.
As far as inflation, Nobel winning economist Milton Friedman, showed that inflation was caused by too much money, chasing too few good/services. This was the definition of the economics of COVID and the post-COVID economy.
Also wage increases lag inflation and the Federal Reserve which controls the money supply is just now considering reducing the interest rate they jacked up to try and moderate inflation. Yes, it has been tough for many people and corporate greed has made things worse, but wages overall are beginning to catch up and things will continue to get better. They always have.
I know several business owners and employees who while they acknowledge that inflation has hurt, they would rather have that than to have lost their jobs or businesses. Paying higher prices is better than getting wiped out and having to start over.
Steve: I did not lose my job during the pandemic but still received Covid checks. And now we have student loan forgiveness. Examples of money that should not have been printed.
Energy policies have oil over $80 / barrel which in itself have increased prices, not to mention enriching Iran and Russia.
The price of autos, our main topic, only continue to rise due to regulation, union contracts and material costs. As publicly traded companies, we can review their financial statements to see if there is indeed corporate greed.
Gary:
I did not say that what was done was done wisely.
Oil is a world commodity and the US is now producing so much oil and natural gas it is now a major exporter. Prices are set internationally based upon demand and availability (including shipping)
Over the last 8 months, GM has committed to $16 Billion in stock buybacks. That could easily have been reduced and that $ used to reduce prices, or at least produced less fully loaded vehicles and/or more affordable vehicles.