Used-car Prices Fall, Raising Financing Costs
Looking to purchase a vehicle? Ivan Drury, head of insights at Edmunds (the experts in car shopping), says there are some encouraging signals for cash buyers. In the spring, wholesale costs for used automobiles reached their highest point before falling by 10%; however, they are still 55% higher than they were before the pandemic. Typically, prices drop in November and December because sellers know that the new year will bring another year of depreciation. Due to the slowing economy, we might anticipate a further 10% price decline in 2023.
It’s a different situation for cash-strapped buyers, though. The average interest rate on loans continues to rise along with the Fed’s interest rate rises. The current average period for a loan on a secondhand car is 70 months, and the interest rate is 9.2 percent. Those interested in financing a brand-new automobile can do so at a rate of 5.9% for 70 months. Many zero-interest promotions have limited durations of 36 or 48 months. Some would-be purchasers are being priced out of the market entirely due to rising loan rates, but the trend is more likely to be a shift from the new car to the used-car market.
It will be quite some time before the secondary auto market returns to normalcy. Even though people are keeping their automobiles for longer, this means that the used cars available for trade-in are generally older models. Additionally, rental fleets are turning over fewer late-model vehicles.
Exiting lessees frequently buy the vehicles they leased since the optional purchase price agreed upon three years ago generally represents a good deal. Lease expenses have increased even faster than prices as manufacturer and dealer incentives have been eliminated, leading to a decrease in the number of new leases being signed. Less than a third (27%) of current leases are being extended compared to a third (60%) before the pandemic.
Production of automobiles in the United States is practically at pre-pandemic levels, but consumers still face lengthy wait times for their new vehicles, driving some to the pre-owned market. Even now, you can’t get your hands on certain brand-new Toyotas and Hondas. The cumulative effect of these factors suggests that used-car prices will remain elevated well into 2020.
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