New data from Edmunds sheds more light on how the growing affordability crisis could impact both consumers and the car market.
According to the research firm’s records, auto prices have increased rapidly since 2018. Last month, the average transaction price for a new car hit $47,713, up from $35,794 five years ago. In the same amount of time, new vehicles with a price of $20,000 or less almost vanished from the market, and only accounted for 0.3% of all sales in March. In 2018, 44% of car purchases were for vehicles costing $30,000. This number now sits at 17%. Given these shifts, few affordable products remain in existence.
Edmunds explains that buyers began to opt for cheaper, more efficient models in response to the 2008 recession, leading manufacturers to make budget-friendly models. However, as the economy recovered, customers slowly started to show more interest in large, expensive vehicles, causing automakers to reverse course. While low interest rates during the years leading up to the COVID pandemic encouraged spending, the resulting rate hikes and economic headwinds made financing a less viable option. OEMs also failed to respond as quickly as they had in 2008, choosing instead to push out costlier products. As it stands now, the number of affordable options is too small while auto loans are too expensive, causing many to delay a new car purchase.
As a result, Edmunds believes consumers will start to favor the used car market. “Although used pricing has fallen from its peak, demand for used vehicles should continue to be strong as new vehicles have simply grown out of reach for many Americans,” notes the report. To avoid losing buyers, automakers will need to make their products more affordable and prioritize incentives until interest rates return to normal.
