More Cars Back In Stock But May Not Be Affordable
More new vehicles are arriving on auto dealer’s lots. However, most Americans may not be able to afford them because the Federal Reserve has hiked interest loan rates to combat inflation. The higher cost of financing a new vehicle is expected to cut demand and add more pressure to the auto industry, which is already struggling from the pandemic.
Experts said the financing cost is expected to keep climbing. The interest rate has increased from 3% to 3.25%, and it plans to continue rising in 2023 until it hits 4.6%.
Recovering Vehicle Inventory
Commercial and fleet sales have increased in the third quarter, indicating that demand may be dwindling. That is a cause for concern because consumer sales are more profitable, and the auto industry is counting on the restrained market from the pandemic to continue in the near term.
However, auto experts said fleet sales are not as bad as in the past. Many large commercial and government fleets are paying sticker prices for hybrid and battery-electric vehicles to meet local emissions standards. The growing fleet orders come as inventory levels rise from record lows.
According to BofA Securities, an American multinational investment banking division, the total auto inventory increased to 1.43 million units at the end of September, up 160,000 units from August. It is the highest level since May 2021.
Automakers have been focusing on manufacturing their most high-priced cars to make up for lower sales. Combining that with rising interest rates, more consumers can’t afford a new vehicle.
Vehicle Prices Continue to Climb
Automotive economists said they don’t expect new car pricing to go down, as automakers promised to keep smaller inventories to boost profits.
According to Edmunds, an expert car review and rating website, during the third quarter of 2022:
- The average financed amount for new vehicles hit a record high of $41,347, compared to $38,315 a year ago.
- The average monthly payment on a new car is above $700.
- Of those buyers, over 14 percent committed to a monthly payment of at least $1,000 for new vehicles, the highest level ever recorded.
Used Vehicle Value Index
Although the pricing of used vehicles has declined, depending on the terms, the increase in interest rate could offset that. The Used Vehicle Value Index, which tracks used vehicle prices, shows that after peaking in January, prices fell about 13 percent in September. In August, wholesale values had their first drop since May 2020. However, prices remain high from historical levels. The average price of a financed used car is over $31,000, which is close to new vehicle prices.
Automakers Increasing Auto Loan Rates
Earlier this year, Nissan and Honda increased rates on most of their vehicle lineups by one percent, which is beyond the Fed rate hike of 0.5 percent, according to a report by CarsDirect. The one percent increase could mean paying an extra $800 in interest on popular vehicles like a 2022 Honda Pilot, where the Manufacturer’s Suggested Retail Price (MSRP) is $39,375.
Car Loans are Driving Up Debt
High-interest rates and high gas prices keep most Americans from buying and maintaining a vehicle. Experts said a car is now a luxury product that only a few Americans can afford.
According to the Federal Reserve Bank of New York, those willing to take the plunge have driven up car loan balances by $11 billion, increasing Americans’ total household debt.
Watch YouTube Video: New Car Prices Will Increase 10-20 percent in 2023. The video below explains why new vehicle prices will continue to increase through 2023.
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