New vehicle prices soar, but there’s no shortage of buyers

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James Greene, director of sales operations for Planet Subaru in Hanover, Mass., said new-vehicle buyers seem to understand how inflation and supply chain issues have affected the market.

“People are used to seeing things that cost more,” Greene said.

Levine, the Florida client, described looking for four-wheel drive and some safety technology when buying a truck for his son. But looking at Ford F-150s, the desired features only existed on higher-level configurations carrying at least $60,000 in sticker prices, which he called overpriced. He ran into the same problem looking at the Ram 1500s.

Rising interest rates, combined with more expensive vehicles, could now put monthly payments beyond a regular consumer’s budget, Hitch said.

“It’s going to be a challenge,” she said.

Jominy agreed that higher tariffs would drive customers out of the market. Typically, each additional percentage point in rates increases a monthly payment by $20 and reduces purchasing power by $1,250, he said.

Auto loan rates will surely rise after last week’s rate hike by the Federal Reserve. Even before that decision, new-vehicle interest rates had risen about 0.7 percentage points this year, Smoke wrote on May 4. Average used-vehicle interest rates had risen about 0.75 percentage points, he said.

But there are still opportunities for customers to stay in the new-vehicle market despite price and pricing pressure, Jominy said. Moving to longer loan terms would result in lower monthly payments. According to trends observed by JD Power, the average loan for a new vehicle should theoretically have reached 75 months by now, he said, but it has instead remained stable at 69 months for the past two years.

“It’s the only lever consumers are holding back,” Jominy said.

Leasing could potentially provide another form of price relief for potential new car buyers.

Right now, monthly lease payments aren’t that attractive to customers, and leasing has crashed to 18% of the market instead of its traditional 30%, Jominy said.

When more favorable offers return, likely in 2023, customers could once again turn to leasing to acquire a new vehicle, he said.

“It’s not all dark and gloomy.”

Manley said AutoNation could use the equity in trade-in vehicles to help customers buy new ones.

“If you look at the increase in wholesale prices for used vehicles and the increase in prices for new vehicles, the gap between them has actually narrowed over the period of last year,” he said. Manley said. “So if you’re trading a vehicle, your position really hasn’t been significantly affected by the price increase, because you have it on both sides. That obviously doesn’t apply to people who are buying a vehicle for the first time in the marketplace.”

Moran said his group can always sell a new vehicle to first-time buyers without trade-in, either by sending them to a Jones Junction store with new vehicles for less or by using friendly lenders.

“Banks [have] great programs for first-time buyers,” he said.

Walser also said he doubts a first-time buyer would be overpriced in the event of a 10% hike that changes the price of a new vehicle from $40,000 to $44,000.

“That difference on a five or six year note, I don’t think, puts people out of the market,” Walser said. But a $20,000 used model going for $25,000 might be a bigger hurdle for some customers, he said.

It stands to reason that eventually customer demand pent up by the pandemic and supply shortage will be met.

Are dealers concerned that the prices displayed are too high for consumers to tolerate then? Walser said no. If sales were to slow due to price, “you’ll see a combination of dealer rebates and OEM incentives that will correct that and bring it back into compliance,” he said.

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