Could it be that what happened to the housing market has now affected the automotive market? Prices have risen and so have interest rates, meaning fewer new cars are affordable for the typical buyer.
Consider this: Five years ago, the average new vehicle transaction price was $35,794. Last month, according to a new report from auto publisher Edmunds, it was $47,713. That means the average price consumers pay for a new car or truck has increased by 33% in just five years.
Remember when there were many new cars with price tags of $20,000, and sometimes even less? Good luck finding one these days.
Check out Edmunds transaction data for March 2023 compared to March 2018:
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0.3% of new vehicles sold cost $20,000 or less, compared to 8% five years ago.
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Only 4% of new vehicles sold cost $25,000 or less, compared to 24% five years ago.
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17% of new vehicles sold were under $30,000 compared to 44% five years ago.
What happened? Two things actually. Automakers began phasing out small, inexpensive sedans because they weren’t as popular and, more importantly, had smaller profit margins. At the same time, consumers started buying more expensive vehicles because they could finance them for seven years.
Is $60,000 the norm now?
Edmunds transaction data for March 2023 compared to March 2018 reveals:
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17% of vehicles sold cost more than $60,000 compared to 6% five years ago.
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10% of vehicles sold cost more than $70,000 compared to 3% five years ago.
Edmunds’ research also shows that five years ago, only 5% of full-size trucks sold for more than $60,000. Last month, 50% did.
SUVs have always cost more than sedans, and five years ago, 54 percent of large SUVs had a sticker price of more than $60,000. Last month, the percentage was 94%.
It is worth noting that for most of this five-year period money was cheap. Interest rates on new cars were around 3%, sometimes less. Now they are around 7%, meaning the monthly payments are through the roof.
The Washington Post recently reported that the average monthly payment for a new car or truck was a record $730 in the first quarter, up from $656 in 2022. Additionally, 16.8% of car buyers pay $1,000 or more per month.
This crunch shows no sign of ending anytime soon. The consumer price index (CPI) for March shows that the price of new cars rose another 0.4% last month while used car prices continued to fall.
