As Edmunds analysts dig into Q2 auto finance data, one point is readily apparent: new-vehicle buyers are stretched to their financial limits. Although some manufacturers have offered vehicle incentives, elevated prices and high interest rates torpedo buyers’ bank accounts.
Lower used-car values are also likely culprits, although manufacturers’ new-car prices are about 2% lower than their 2022 peak, reports Kelley Blue Book. The average transaction price for new cars was $48,389 in May, virtually unchanged compared to April, according to recent KBB data.
“High interest rates continued to be a heavy drag on new-vehicle sales growth in the second quarter,” says Jessica Caldwell, Edmunds’ head of insights. “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.”
Average auto loan interest rates across all credit profiles range from 5.64% to 14.78% for new cars and 7.66% to 21.55% for used cars, reports MarketWatch. See a breakdown of interest rates for new and used car purchases at the end of the story.
Other factors stretching consumers’ budgets to the breaking point, according to Edmunds:
Longer loans: Roughly 70% of new-vehicle loans had terms over 60 months in Q2 2024. The average new-vehicle loan term in Q2 2024 was 69 months, the highest point since the end of 2022 when average new-vehicle interest rates sat under 7%.
Low down payments: Not putting as much money down and seeing monthly payments spike to all-time highs: The average new-vehicle down payment dropped to $6,579, the lowest mark Edmunds has seen since Q3 2022. Edmunds analysts note this has contributed to the average monthly payment reaching an all-time high in Q2 2024 of $740, up from $735 in the prior quarter and $733 a year ago.
Near-record monthly payments over $1,000: The share of consumers taking on new-vehicle loans with monthly payments of $1,000 or more was 17.8% in Q2 2024, just shy of the record 17.9% share in Q4 2023, which Edmunds analysts note is a quarter when vehicle prices are seasonally higher.
Cox Automotive recently noted that the upcoming presidential election also factors into buyers’ hesitation.
“Sales have been relatively strong over the last few months thanks in large part to lower prices. Incentives are rising, which are helping vehicle buyers, but only somewhat,” says Charlie Chesbrough, senior economist at Cox Automotive. “We remain concerned that the second half of the year cannot maintain the growth we’ve seen so far.
“Adding to the uncertainty in the market, many consumers likely believe things will be better, or at least more certain, after the November election, which adds to the hesitancy in buying. We still expect 2024 to finish a little better than 2023 – supported by more discounting and better prices, but we will be fighting an uncertain economic outlook.”
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