Used car sales are soaring across the U.S., benefiting companies like Autonation, CarMax, Carvana and Buffalo, N.Y.-based used car startup ACV Auctions.
Patrick T. Fallon Bloomberg | Getty Images
Shoppers have splurged on high-end new cars during the pandemic. Now, with current high car costs and interest rates, drivers are turning their attention to cheaper models. However, finding one may not be easy.
Edmunds consumer insights analyst Joseph Yoon said more shoppers are choosing vehicles priced between $45,000 and $50,000, which is the price point for mid- to high-end three-row SUVs.
The shift is reflected in so-called “days on sale” figures, which measure how long a car remains in a dealer’s inventory before being sold. According to Edmunds, vehicles currently priced under $50,000 spend an average of just 26 days on a lot, compared to 40 days for vehicles with higher price tags.
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“We’re seeing the overall economic impact here,” Yin said.
“People are no longer buying top-tier cars, they’re buying mid-range cars,” he added, “and that’s where we start to see that shift.”
Even so, the average transaction price for a new car in August was $47,941, up 0.8% from July and up 1.6% from a year earlier, Edmunds found. New car financing rates also rose 7.4% in August, reaching the highest level since 2008.
As a result, the average monthly payment for a new car hit a record $738.
It’s rare to find a car with an average selling price below $20,000
Drivers looking for a new car may soon discover that finding a bargain on a new car is getting harder and harder these days.
The barometer of $20,000 or less is a kind of unofficial price threshold for affordable new cars, said Brian Moody, executive editor of Kelley Blue Book.
“There aren’t as many cheap new cars as there used to be,” Moody said.
In fact, only one model had an average new-car transaction price under $20,000 in July, according to Kelley Blue Book data: Mitsubishi Mirage.
Consumers looking for cars priced between $20,000 and $50,000 may find more options. Of the 35 brands, 14 – Buick, Chevrolet, Chrysler, Fiat, Honda, Hyundai, Kia, Mazda, Mini, Mitsubishi, Nissan, Subaru, Toyota and Volkswagen – had average transaction prices below $50,000 in July Dollar, according to Kelley Blue Book.
Of course, experts say transaction prices don’t tell the whole story. This price captures what the average buyer pays—a variable that depends on factors such as car dealer markups and promotions and any add-ons the buyer chooses at the time of purchase.
“Americans don’t like being featureless.”
Just a few years ago, consumers could find entry-level cars starting at $15,000, said Paul Waatti, industry analyst at market research firm AutoPacific.
Experts say the lack of cheaper options today is due to a number of factors.
These include consumer preferences – people tend to want models With more features, Watt said.
“Culturally, Americans don’t like their cars to not have features,” such as automatic climate control, car playback screens and parking sensors, Yin said.
Varty said automakers know this and use it to their advantage in marketing.
“Carmakers obviously want to be able to tell everyone that they are offering an affordable car, and they can do that through messaging,” he added. “But at the end of the day, they don’t make a lot of low-priced models.”
Instead, automakers will produce more high-end models with features consumers want, Yin added.
In fact, vehicle sales increased in the luxury segment, Moody’s said. He said they now account for about 20% of total new car sales, up from about 10% before the Covid-19 pandemic.
The bottom line is, they don’t make many low-priced models.
Paul Watts
AutoPacific Industry Analyst
Five years ago, there were 12 cars selling for an average of more than $100,000. There are currently 32 vehicles, according to Kelley Blue Book data. Both statistics exclude “super exotics” from the likes of Ferrari, Lamborghini and Rolls-Royce.
Inflation for new and used cars has also surged during the pandemic, causing vehicle prices to rise. Materials and supplies have become more expensive, driving up production costs for car companies, and those higher costs are passed on, at least in part, to buyers, Varty said.
Experts say higher interest rates may also keep potential buyers out of the car market right now.
Because buyers who typically purchase the cheapest cars tend to have tight budgets, their absence could lead to higher average purchase prices, they said.
The average purchase price of a new car today is about $48,000, up from about $30,000 in 2012, according to Kelley Blue Book.
4 tips for finding the right car at the right price
Here are some general tips for finding a reasonably priced car for consumers, provided by Tom McParland, owner of Automatch Consulting, a car buying service for consumers:
1. Really know your budget
Most car buyers conceptualize the price of a car in terms of monthly payments.
However, McParland said consumers should use an online car loan calculator to understand their overall budget before shopping. Otherwise, he adds, it’s hard to know whether you’re getting a good deal.
affim car loan calculator Let consumers work backwards by entering a monthly payment that fits their budget, along with other estimated information such as loan term and interest rate. Output: The total price of the vehicle that buyers can afford.
“That’s probably the best step any customer can take,” McParland said.
2. Look beyond your local market
Casting a wider net during the car search process can yield more potential inventory and leverage with dealers, McParland said. He added that some markets are “better than others” and that even looking at them an hour or two later “will probably give you a more competitive deal.”
3. Get prices in writing ahead of time
McParland says to confirm the car’s price in writing with the dealer before coming to the door. Refusal to do so is a red flag, he said.
“That’s code for ‘We’re going to blackmail you,'” he said.
4. Purchase Financing
Do not rely on dealer financing offers.
Experts say dealers can profit from consumers by offering higher interest rates than necessary. They say that’s why it’s a good idea to get pre-approved for a car loan before setting foot in a dealership — perhaps from a local bank, credit union or online lender.
McParland said the offers, which can provide dealers with better prices, are especially helpful for buyers with credit scores below 700 because they are less likely to qualify for the best deals.
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