New car buyers pay record prices, accept record loan repayments
(The Car Connection) – The average price of new cars is expected to hit $46,259 by the end of August, eclipsing last month’s record and the one before, according to JD Power’s latest sales forecast.
Record-breaking new car prices have become a record breaking for car buyers over the past year. The average transaction price customers paid for a new car was $45,844 last month, up from more than $41,000 a year ago. The automotive research and advisory firm estimates that the highest ever price for new cars was an 11.5% increase from last year.
The usual suspects of global microchip shortages and other supply constraints have resulted in demand always exceeding supply.
“This August, the industry is still constrained by insufficient inventory to meet strong consumer demand,” Thomas King, president of JD Power’s analytics and data division, said in a statement. “The result is a retail pace that fails to live up to its potential.”
Estimated sales volume for the year for retail and fleet customers is expected to be 13.3 million vehicles, down from 17 million pre-pandemic highs. Fleet sales will be slightly higher this year than last year, while retail sales are expected to be slightly lower.
The lack of volume is more than offset by high margins on more expensive models. Many automakers are delaying base models or dropping entry-level models in favor of better-equipped, more expensive models. Buyers continue to buy more expensive trucks and SUVs. Together, trucks and SUVs will account for more than 78% of new car sales in August.
Dealerships continue to benefit with an average profit of $4,976 on each car sold. That’s down from $5,123 in June, but still up $639 from a year ago and well above pre-pandemic expectations of around $2,000.
Car buyers continue to pay more. The increases come amid prevailing trade winds meant to keep inflation in check, such as higher interest rates for car loans. But robust demand is fueling economic logic, leading to the highest-ever monthly loan payment of $716. That’s an increase of $78, or 12.2%, from a year ago, according to JD Power. The average interest rate on a new car loan has climbed to 5.5%.
Typically around Labor Day, automakers push out new model year cars and dealerships offer more incentives to clear many outgoing model years. Incentives remain weak.
On the positive side, used car prices remain high and trade-in values are offsetting some of the high costs of owning a new vehicle. Of course, the downside is that deals on any car are hard to come by.