Rising credit costs, transaction prices hurting car affordability, EV adoption

Rising credit costs, transaction prices hurting car affordability, EV adoption

Monthly car loan payments are at an all-time high, transaction prices continue to rise and sticker prices lose relevance as car buyers’ wallets are plagued by the effects of the Covid-19 pandemic, including thin inventories, rising inflation and interest rates. These conditions are dampening overall car sales, but especially the acceptance of electric vehicles.

It’s not all bad news. Trade-ins yield lucrative payouts from dealers desperate for something to sell, especially the much sought-after late model pickup trucks and SUVs.

On the credit side, consumer tax shows no signs of slowing down. According to the Q1 2022 TransUnion

Credit sector insight report released last week the average balance of new car loans reached $28,415 in the first quarter of this year. That is an increase of 15.2% year-on-year. “This has pushed the average monthly payment on vehicle purchases (including new and used vehicles) to $458, an increase of approximately $100 over a four-year period,” the report said.

“We are definitely seeing this trend of increasing average monthly payments. In the first quarter of 2022, that number increased to an average of $556,” Satyan Merchant, senior vice president and automotive business leader at TransUnion, told “For new vehicle financing, the average was $651. Used, $490. Both all time highs.”

Ironically, annual rates (APR) on car loans are actually declining according to Merchant, who noted they have reached a plateau with an average of 4% for a new car loan and 8% for used car financing, both of which are lower. than the APRs in 2018 and 2019. However, payments are inflated by consumer preferences for expensive pickups and SUVs, Merchant said.

He expects APRs to move north again after the Federal Reserve raises interest rates by half a point to help slow inflation.

Consumers’ rich tastes coupled with their willingness to pay whatever it takes to land the vehicle of their choice has led to a split with buyers who traditionally negotiate to pay below the sticker price.

“For nearly a year, we’ve seen new vehicles trade above MSRP,” said Rebecca Rydzewski, economic and industrial insights research manager for Cox Automotive in a statement. recent report. “High prices, a lack of inventory, little incentive – the market is changing, pushing many potential buyers to the sidelines and forcing others to order from future inventory and wait. We expect the affordability of new vehicles to be a challenge in the near future.”

According to the Kelly Blue Book unit of Cox Automotive, average transaction prices in April were $46,526 as “car buyers paid an average of $862 above the sticker price.”

Just as automakers are producing electric vehicles in a wider variety of body styles, fueling consumer interest, those on a budget may need to stick with their gas rides a little longer.

“The problem here is one of supply and demand and the fact that these cars cost more to produce, mainly because of the cost of the batteries,” said Jesse Toprak, principal analyst at EV subscription provider. Autonomy.The long-term outlook is that prices will fall and premiums will erode, but that will take several years.”

For those who want to at least try moving to an EV, Autonomy offers subscriptions to a Tesla

Model 3. Subscriptions can be canceled monthly after a minimum of three months. Customers have a choice of two payment plans: either $4,900 down payment and $490 per month, or $990 down payment and $990 monthly payments.

Toprak says it’s a good plan for those unsure if they’re ready to make the switch, calling an EV subscription “an extended test drive.”

But he’s confident he will resist the use of EVs, especially by those who drive commercial vehicles, with the introduction of the Ford F-150 Lightning electric pickup truck, going so far as to call it “the most important vehicle introduction since the Model T’ mentions. †

His reason? Appealing to the working class customer will open up a huge new market willing to pay the EV premium, if “we can bring that segment into the EV fold and they start to see this thing is great, not $800.” per month in gas, but also my torque is better, my performance is better.”

At this time, Autonomy only operates in California, but Toprak says the company is expanding its service area and also plans to expand its EV offering.

The good news for consumers dealing with rising prices and the cost of credit is that the car or truck you want to trade in may be worth a treasure.

According to report this week from online car marketplace cars.comdealers with too many empty spaces on their lots pay premiums for cars and trucks to fill them.

“An overwhelming 99% of dealers surveyed said they now pay more for trade-ins than they did two years ago; nearly 60% estimate a higher payout between 11% and 20%, and more than one in three dealers say they paid more than 20% more than two years ago,” the survey found.

That extra cash could scratch just enough to rock a new set of wheels — maybe even one that runs on batteries.