A growing number of consumers are shying away from the new car market as prices increasingly become out of reach. But used cars aren’t offering much relief either, according to auto industry experts.
Joseph Yoon, consumer insights analyst at Edmunds, told FOX Business that shoppers are contending with the highest average monthly payments and highest average loan balances ever seen at Edmunds. The company’s data from October, the most recent on record, showed that the average monthly payment for a new vehicle reached a new all-time high of $766. The average amount financed toward a new vehicle also topped a new record at $43,218.
It’s putting additional pressure on shoppers at a time when consumer confidence has continued to deteriorate.
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Brian Moody, Autotrader’s executive editor, told FOX Business that many consumers he has spoken with say the price pressure of the vehicle, which includes financing, insurance and maintenance, “all but eliminates new cars.”
With consumers turning away, Moody projected that automakers may be forced to come up with new ways to reduce the prices of new cars to regain consumers, “maybe even de-contenting cars and providing lower quality interior materials in order to achieve the prices consumers want,” Moody said.
Shrinking affordability for new cars is pushing more shoppers toward used vehicles. Yet, even there, the relief is limited – the problem traces back to the COVID-19 pandemic.
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Yoon said deflated lease penetration rates – the percentage of new vehicles sold that are leased rather than purchased – are a key factor behind today’s used-car inventory shortfalls. Since there were far fewer cars leased during the pandemic, when inventory was tight and leasing was less attractive, there are now fewer off-lease cars returning to the market. Those cars normally make up a big chunk of the used-car supply, so the drop has created a noticeable shortage, Yoon said.
“While used-car transaction prices have cooled since their peak in 2022, the prices of the most desirable (newer) used cars are still sky-high, offering little relief to consumers in search of a value proposition,” Yoon said.
Still, for many consumers, used cars remain the only viable option. That’s become evident as demand for used vehicles continues to rise even with elevated prices.
Moody noted that the pace of used car sales in October totaled $1.4 million, up 3% on a monthly basis. Meanwhile, Moody estimated that prices in October jumped 2% from a year earlier to $25,945. Still, a nearly $26,000 listing price for a used car is well under the $50,000 average new vehicle price for a new vehicle, which Moody underscored was the price that was turning more shoppers away.
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“There are plenty of good used cars, but it might require a little extra research,” Moody said. He said that used luxury cars tend to depreciate more rapidly, including electric cars, so they often represent a significant value. Those cars also typically have more standard safety features and options due to their high price when sold as new.
Steven Posner, CEO of Putnam Leasing, told FOX Business that longer leases could help mitigate some of the pressures consumers are facing.
“If consumers are in a lease right now at a lower rate, seeing if they can extend the lease with the manufacturer is a good way to get more time to see where the market is headed,” Posner said. He noted that most car manufacturers will give consumers six months at the same rate and payment, so that they aren’t forced into buying something that they might not get the best deal on.
For New Jersey car dealership owner Tom Maoli, some of his customers are even looking into longer-term financing out to 72 months.
Posner added that it’s also important to remember that dealers are especially motivated to make deals at the end of the month and the end of the year. By the end of the year, certain manufacturers are motivated to push the cars out and clear inventory, often making it an even better time to get a car.
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