We all know by now that consumers are engaged in a bidding war over new cars and trucks.
Scarcity resulting from an ongoing shortage of computer chips and other kinks in the supply chain is causing transaction prices for new vehicles to hit record or near-record levels just about every month. And now higher interest rates are also contributing to higher monthly payments.
How high? Average monthly payment is on track to exceed $700 in July, according to a prediction from JD Power and LMC Automotive. Based on the first 19 days dealers were open in July, the average monthly payment rose to $708 for July, the forecast said. That’s a 12.8% increase from a year ago, or about $80 per month.
Keep in mind, that’s the average. According to Edmunds, a record 12.7% of consumers who financed a new car purchase signed a monthly payment of $1,000 or more in June. That’s a 7.3% increase in June 2021, Edmunds said. Pre-pandemic, in June 2019, was 4.6%.
And yet the largest publicly traded new vehicle dealers insist they could sell more cars and trucks if only they could get more.
“Consumer demand for vehicles remains extremely strong heading into the third quarter, and we continue to sell most units almost immediately upon receipt,” said Earl Hesterberg, president and CEO of Houston-based company. Group 1 Automotivein a conference call to announce the second quarter results.
“These dynamics should continue through the third quarter and possibly much beyond assuming there is no material change in consumer demand,” he said.
Second-hand car prices are also rising. It’s fair to point out that the trade-in value is so high that it offsets at least some of the increase in transaction prices for new vehicles, said Bryan DeBoer, president and CEO of Lithia & ramp motorsMedford, Oregon, in a separate revenue conference call.
“I think it’s important to remember in terms of affordability, when people buy new vehicles, their used cars are valued so highly that the delta between the trade-in and the vehicle they buy has shrunk, DeBoer said.
Consumers have a measure of the prices of new vehicles – that is, the manufacturer’s suggested retail price. But used car values are “limitless,” DeBoer said. In some cases, Lithia has noticed customers resell cars they recently bought for “something north of $5,000 to $10,000 more than what they paid,” he said.
It is true that the suggested retail price, also known as the sticker price, is a benchmark. However, there is so much demand for new vehicles that it has become routine across the industry for customers to pay more than the sticker price, which was unheard of before the pandemic.
According to JD Power and LMC Automotive, the average sales price for new vehicles in July was expected to be $45,869. The previous high for each month, $45,988, was set last month, in June 2022.