Prices for new and used cars have come down from their pandemic highs, but affordability concerns continue to plague buyers.
Edmund’s Survey Unveils Troubling Trend
Edmunds’ most recent “Car Shopper Expectations vs. Market Realities” research shows that American drivers’ pricing expectations for new and used cars are out of touch with the reality of current market prices and auto loan APRs. This article will explore some of the study’s revelations.
Prices Remain Relatively High Compared to Pre-Pandemic Rates
Before the pandemic, the American automotive market favored buyers. Average transaction prices for popular vehicles hovered at around $35,000. Automakers offered generous incentives, and borrowers took advantage of low interest rates. All that has changed in the last several years.
Because the average trade-in age for a new car is around six years, buyers who last purchased cars before the pandemic are heading back to dealerships. Over 73% have already held off on buying new or used cars due to high prices. More than 62% have put off vehicle purchases because of high interest rates.
Consumers’ Expectations Aren’t In Line With Market Realities
According to the same report, 48% of new-car shoppers indicated that they have budgets of less than $35,000, which makes some sense given that this was the average transaction price six years ago in 2018. Around 14% say they have budgets of $20,000 or less.
Unfortunately, these expectations do not line up with the realities of today’s automotive markets. In July 2024, the average new vehicle transaction price was $47,716. While some vehicles were available for around $35,000, nearly none cost less than $20,000.
Edmunds’ research uncovered similar trends regarding interest rates. Around 75% of buyers say they are willing to accept up to a 6% APR, but 37% said their limit was 3%. In July 2024, the average APR for new vehicle loans was 7.1%.
Expectation Discrepancies Also Apply to Used Cars
Around 64% of the car buyers surveyed cited budgets of $20,000 for used cars. Half wanted to spend less than $15,000. Around 25% set themselves budgets of $10,000 or less. As with new car purchases, these expectations are out of touch with reality.
In July 2024, the average transaction price for used cars was $26,936. Only around 5% of used vehicle transactions were $10,000 or less. The story is similar when it comes to used car loans. Consumers want interest rates between 0% and 5%, but the average APR in July 2024 was 11.4%.
What’s the Solution?
As more consumers accept the realities of the current automotive markets, they are deferring other large purchases to afford new vehicles. 15% of respondents said they were cutting back on basic monthly needs, and unfortunately, around 5% of respondents were putting off medical procedures.
Over half of potential car buyers are working additional hours or picking up second jobs to afford new vehicles.
Understanding the realities of the current market can help buyers avoid sticker shock as they enter showrooms. Choosing used cars instead of new vehicles can help to keep costs low, and buying older or smaller vehicles can help buyers get closer to meeting their budgets.
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