The average price for a new vehicle hit $49,500 at the end of last year, compared to $38,948 just three years earlier. Skyrocketing interest rates pushed the average monthly car payment on a five-year loan to $723 in March.
New vehicles priced under $25,000, a range that the average American might deem affordable, now account for less than 5 percent of all sales.
Customers who walk onto a dealer’s lot expecting such enticements as zero-APR financing and thousand-dollar rebates are in for a surprise: For the first time in recent memory, the automobile industry is a seller’s market.
“It is no longer a $25,000, $30,000 transaction. It is a $50,000, $60,000 transaction,” said Patrick Rosenberg, director of automotive finance intelligence at J.D. Power, the car-consumer company. “It is a greater financial commitment than it has ever been.”
The car-and-truck marketplace went haywire during the COVID-19 pandemic, along with much of the American economy. A global shortage in semiconductors, the chips that control everything from airbags to windshield wipers, seeded massive production delays. Toss in pandemic shutdowns and other supply-chain kinks, and the conveyor belt of new cars slowed to a crawl.
At that point, simple economics kicked in. Demand overwhelmed supply. The customer-friendly, let’s-make-a-deal milieu of the typical new-car dealership vanished as quickly as that new-car smell. It hasn’t returned.
Generations of automotive customers have come to expect deep discounts, four-figure rebates and zero-interest financing. In a new-car negotiation, the sticker price was a mere starting point. No longer.
“Most people don’t expect to pay sticker price. People are paying sticker price,” said Jessica Caldwell, executive director of insights at Edmunds, the automotive information-services company. “Vehicles are coming off the truck, and they’re being sold immediately.”
The semiconductor crisis has eased, the supply chain has loosened, and vehicle production has resumed. But most of the cars and trucks rolling off the assembly lines are luxury items.
Between December 2017 and December 2022, the share of all new auto sales priced above $60,000 more than tripled, from 8 percent to 25 percent, according to research by Cox Automotive.
In the same five years, the share of sales under $25,000, a standard cutoff for economy vehicles, shrank from 13 percent to 4 percent.
“The manufacturers have been steering the market toward more expensive products,” said Charlie Chesbrough, senior economist at Cox. “All those bells and whistles, nav-screens, cruise control, all those fantastic and lifesaving technologies cost money.”
More than 90 vehicle models now fetch $60,000 or more, Cox reports. Meanwhile, in five years, the number of models priced under $25,000 has dwindled from 36 to 10.
U.S. automakers have walked away from economy-priced sedans because of thin profit margins and because consumers don’t seem to want them.
“Ford Focus, Ford Fusion, Chevy Malibu, Chevy Cavalier: There’s a long history of the Detroit three making passenger cars,” Chesbrough said. “But they decided, seven, eight years ago, that the margins just weren’t there for them.”
As a result, actual cars now make up only about one-fifth of the Detroit auto market, an industry dominated by high-priced pickups and SUVs. (The Hill)