New And Used Cars Becoming Increasingly Unaffordable As The Average Vehicle Age Hits A Record High

The automotive industry is facing an unprecedented affordability crisis just as it’s still reeling from three consecutive years of pandemic-triggered supply and demand issues.

A dearth of inherently affordable used and new vehicles combined with sky-high transaction prices and exacerbated by lofty auto-loan rates is pricing many consumers out of the market, resulting in more older cars remaining on the road than ever.

Last month, the average new vehicle sold for $47,713, according to Edmunds.com, which is a full third more than it was five years ago when the typical ride went for just $35,794 and there was a generous selection of reasonably priced models on the market. Half of all full-size trucks, 70% of midsize luxury SUVs, and 94% of large SUVs are now selling for over $60,000. Five years ago, those percentages stood at 5%, 31%, and 54%, respectively.

Consumers and new-car dealers alike are driving the market by embracing fully-loaded models, especially costly (and profitable) pickup trucks and SUVs bedecked with enormous touch screen displays and opulent amenities that were once limited to higher-end luxury models. Consumers who would gladly settle for less to keep the sticker price within their budgets are being shut out.

We found only three new cars—all among the few remaining subcompacts—with retail prices that start that at around $20,000 or less including the mandatory destination charge. But that’s for base models one may have trouble finding on a dealer’s lot among a fleet of costlier higher-trim versions. As an example, the subcompact Nissan Versa is the least-expensive car sold in the U.S. for 2023, with the base S trim priced at $15,830, or $16,925 with delivery. But that’s with a manual transmission and only basic amenities like power locks and windows, air conditioning, and (to Nissan’s credit) a few essential driver-assist safety systems.

At that the automaker’s website turned up just a single base-model Versa being offered for sale within 50 miles of Chicago, with most coming in higher trims and listed at $20,000-$23,000. And that’s not including taxes and fees that can jack up the cost by another couple thousand bucks. Not surprisingly, Edmunds reports sub-$20,000 models accounted for less than 1% of all new-vehicle transactions during the first quarter of 2023.

On top of that, the used vehicle market is no longer the safe haven it once was for cash-strapped car shoppers, as Edmunds reports that the $20,000 pre-owned car is likewise becoming increasingly rare on dealers’ lots. Today they account for 30.6% of all transactions compared to 60.5% five years ago.

The average transaction price for a used vehicle stands at $28,381, according to Edmunds, which is 6.4% less than in 2022, but remains up by a whopping 44% over 2018’s average of $19,657. Limited supplies from fewer trade-ins, leased models, and off-rental cars and SUVs, subject to greater demand from budget-restrained buyers moving from the new-car end of the dealership are largely to blame here.

What’s more, the higher transaction prices across the board are compounded by rising interest rates due to the Federal Reserve’s multiple Federal Funds Rate hikes in recent months to help tamper inflation.

According to Bankate.com data, during the course of 2022 the average interest rate on a 60-month new vehicle loan for a creditworthy customer shot up from 3.86% in January to complete the calendar year at over 6%. Rates are expected to remain at around 7% this year for new-car loans and around 8% for pre-owned models. But that’s for consumers having average or better credit; those suffering sub-par FICO scores could be asked to pay well into double digits to finance a car.

How much of a burden is the rate hike? The difference between taking out a $40,000 car loan at 4% and one at 8% will cost a car buyer an additional $4,463 over the course of a five-year loan.

Also, the number of motorists facing monthly payments of $1,000 or more is reportedly in record territory, with 15.7% of all new-car loans reaching that mark as of the beginning of 2023. It was at 6.7% two years earlier. Loan terms are being stretched as well to help keep monthly payments lower, with 36.1% of all car buyers taking out loans for six years or longer,

Though new-vehicle sales are on the uptick so far this year as dealer inventories finally catch up with consumer demand, the National Automobile Dealers Association warns of storm clouds forming on the industry’s horizon. The trade group cautions that the economy’s current state of affairs, combined with automakers’ production tending to skew toward higher equipment levels, will put further pressure on vehicle affordability moving forward.

As it stands, owners who are finding themselves priced out of either the new- or used-car market are holding onto their rides more tenaciously than ever. The average age of U.S. light-duty vehicles on the road now stands a record 12.5 years, according to a recent study by S&P Global Mobility. That represents the highest yearly upsurge since the 2008-2009 recession triggered a sharp falloff in new-vehicle demand. The company predicts that vehicles older than six years will account for more than 74% of the country’s total vehicle fleet by 2028.

On the plus side, that means there could be happy days ahead for auto parts manufacturers/retailers and mechanics to keep all those older cars running.

The above content was 100% generated by a human contributor.