Prices on new and used vehicles remain 30% to 50% above where they were when the pandemic erupted. The average used auto cost nearly $31,000 last month. The average new? $47,000.
The average used auto cost nearly $31,000 last month. The average new? $47,000. With higher prices and loan rates combining to push average monthly payments on a new vehicle above $700, millions of buyers have been priced out of the new-vehicle market and are now confined to used vehicles.
CarMax said it sold nearly 15,000 fewer vehicles last quarter than it had a year earlier. The CEO of the used-vehicle company, based in Richmond, Virginia, pointed to inflation, higher borrowing rates and diminished consumer confidence. Ivan Drury, director of insights at Edmunds cautioned that it will take years for used prices to fall close to their pre-pandemic levels. Since 2020, automakers haven’t been leasing as many cars, thereby choking off one key source of late-model used vehicles.
Higher borrowing rates have compounded the problem. In January 2020, shortly before the pandemic hit, used-vehicle buyers paid an average of 8.4% annual interest, according to Edmunds. Monthly payments averaged $412. By last month, the average rate had reached 9.2%. And because prices had risen for over two years, the average payment had jumped to $567.
Glenn Mears, who runs five dealerships south of Canton, Ohio, says the Federal Reserve’s interest rate hikes, by contributing to pricier auto loans, are slowing his showroom traffic.Analysts generally say that with shortages of computer chips and other parts still hobbling factories, new-vehicle prices won’t likely fall substantially. But further modest price drops may be likely. The availability of vehicles on U.S. dealer lots improved to nearly 1.
Despite recent stock market declines, many such buyers have built up wealth, especially in their homes, and are rewarding themselves with high-end autos. In the San Francisco Bay area, for example, notes Inder Dosanjh, who runs a 20-dealership group that includes General Motors, Ford, Acura, Volkswagen and Stellantis brands, many people have received substantial pay raises.In its earnings report Tuesday, GM noted that its customer demand is holding up.
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