In World of Change, Car Payments Stay Constant
Consumers have offset higher prices by extending loan payback terms as well as leasing cars more often.
A few things don’t change, and one of them apparently is the average monthly car payment in the U.S.
At a steady $455, that near-constant stands out in an ever-changing automotive world, Deirdre Borrego, a J.D. Power vice president, says during a presentation on auto trends.
Conventional wisdom would assume that as transaction prices rise, monthly loan payments would go up, too. Instead, consumers have counteracted higher prices by stretching loan terms and leasing more often. Nearly one in four vehicles now is leased.
“The key enabler is longer-term loans,” Borrego says. “Low interest rates have helped. Higher interest rates would be a threat, but we probably won’t see an increase in those until 2015.”
The average transaction price went from $25,500 in 2008 to $29,200 in 2013, according to J.D. Power data tracking.
As a result of vehicle price increases, annual consumer automotive spending is expected to go from $227 billion in 2009 to $399.6 billion in 2015, Borrego says.
Many analysts predict heighted competition among automakers this year will curb transaction prices and increase buyer incentives.
Loans of 72 months and beyond now finance 30% of auto deliveries, Borrego says. “It’s not stretching much beyond 72 months. If a loan is too long, you get into equity issues.”
Other trends she cites:
Subprime lending. Making a comeback, it now comprises about 16% of auto financing. That compares with 10% in 2009. It was 20% in 2007, the year before the credit industry went arctic.
Lots of redos. Automakers have shortened product cycles to keep models crisp and to cut the need for slapping on big incentives. Those increase toward the end of a model cycle, so automakers now refresh and refresh often.
Young buyers. “We’re seeing phenomenal growth in Generation Y coming to market,” Borrego says. “They account for 23% of retail sales. It was 14% in 2009. This group was really impacted by the economic downturn.”
Truck wars. “The year 2014 will be the battle of the pickup trucks,” she predicts. In the fullsize segment, main combatants are the Ford F-150, Chevrolet Silverado and Chrysler’s Ram, all newly or recently redone. “Automakers have made big investments in this strong segment,” she says.
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