Sticker Shock Jolts Consumers

There’s a marked contrast today between what many car shoppers expect to pay for a new vehicle and what it costs.

It’s a new round of sticker shock.

Consider survey findings from Edmunds, an automotive data provider and online marketplace.

Nearly 50% of new-car shoppers said they’d like to spend $35,000 or less on their next vehicle. Nearly 15% said they’d like to spend $20,000 or less.

Good luck with that.

Edmunds’ data indicates the average transaction price for a new vehicle was $47,716 in July. And there were nearly zero new-vehicle transactions under $20,000.

Loan interest rates also showed a gap between expectations and reality.

For example, three out of four used-car shoppers search for interest rates between 0% and 5%. But during July, six out of 10 car buyers who financed used vehicles pay between 6% and 11% in interest.

How Consumers React

Many customers are coming to the market with skewed perceptions of affordability based on their last vehicle purchase, Edmunds says. 

How are those consumers reacting?

Nearly 75% say they are delaying their next vehicle purchase. That car already in their driveway isn’t looking so bad and in need of replacement after all.

Then again, some go-getters (54% in the survey) say they plan to work more hours or find higher-paying jobs to cover the cost of their next vehicle purchases.

More than half of the survey respondents planned to cut back spending in other areas to afford vehicles. Nearly 30% say they would skip a vacation. A few of them (5%) saythey’d delay a medical procedure to fund their next vehicle purchases.

Despite current customer affordability concerns, new- and used-vehicle prices have cooled from the red-hot levels of recent years when inventory shortages created a seller’s market.  

But Edmunds says affordability concerns among American car shoppers aren’t going away anytime soon.

It makes some people long for the good old days – of only a few short years ago.

Skewed Perceptions

“In pre-pandemic times, the car shopping landscape was far more buyer-friendly,” says Edmunds analyst Jessica Caldwell.

Those were the days of a buyer’s market.

She notes automakers back then were battling inventory glut with generous incentives. Interest rates were near historic lows. Average vehicle transaction prices were around $35,000.

That was then, this is now, which means “consumers are likely coming back to the market with skewed perceptions of affordability based on their last car shopping experiences,” Caldwell adds.

So, a $40,000 to $60,000 price range today jolts many people re-entering the market, given that transaction prices were lower by $12,000 six years ago.

“Many consumers are simply unaware how many new vehicles have shifted into this price range due to not just inflation but added features, technology and, in many cases, increased size,” Caldwell says.

Edmunds’ analysis is based on a consumer sentiment survey conducted in August among car shoppers who have purchased a vehicle previously and have indicated they are planning on purchasing vehicles during the next 12 months.

Affordability is hardly a new issue in auto retailing. It has been a topic of discussion at National Automobile Dealer Assn. shows for some time now. 

If consumers in large numbers balk at purchasing new vehicles, that can jam up inventory flows, NADA President Mike Stanton tells WardsAuto.

“Any time we are jammed as an industry, it creates problems,” he says. “Ultimately, the consumer makes the choice.”

What’s Ahead

Sales are not growing as fast as the industry in general expected entering 2024, Haig Stoddard, a principal analyst for the Informa Tech Automotive Group, tells WardsAuto, which is part of that group.

Still, he says light-vehicle sales are predicted to end 2024 at 15.9 million units, up 2.6% from last year's 15.5 million. That’s the highest since 17 million in 2019, before COVID and then inventory shortages hit.

The initial consensus, including Informa’s initial forecast, is that 2024 sales are expected to top 16 million units.

“Demand is hampered by inventory being skewed towards higher-priced vehicles, in part due to a reduction in the number of entry-priced vehicles over the past five years,” Stoddard says.

Other deterrents he cites are higher interest rates and an overall aging lineup of non-electrified products on dealer lots, which does not put consumers in the buying mood.

“Sluggish growth in overall demand has caused automakers to make moves to keep inventory in check by slowing production and raising retail incentives to pare stocks on dealer lots,” Stoddard says.

Still, most automakers seem serious about “not using incentives just as a way to maintain market share,” he adds.