Historically high interest rates are weighing on the auto industry — Jessica Caldwell | Edmunds

With the current headwinds facing the automotive industry, dealers and consumers alike are still facing the pain points of new and used vehicle sales. Joining us on today’s episode of CBT Now, with an update on market conditions, is Jessica Caldwell, Edmunds‘ Executive Director of Industry Insights.

As the industry finished the first half of 2023, Caldwell reports that the second quarter looked “fairly decent.” She continues, “We have seen a year-over-year increase as inventory improves, consumers are returning to the market, and there’s plenty of pent-up demand.”. But, due to these indicators, it leaves the question: When will consumers return to the market and start buying cars again?

Interest rates

Looking at June, pricing remained relatively high, with ATP reaching the second highest it’s ever been. The industry continues to see discounts return to the market, and vehicles are no longer ticketed above MSRP. Dealers are now looking at almost $30,000 as an average ATP, which is a cooling point from the price highs of 2022. Even still, used car prices in June were 43% higher than in June 2019—before the pandemic’s peak. According to Cladwell, “Although market pricing is easing, historically, it remains astronomically expensive compared to before the global shutdown.

Interest rates significantly impact consumers returning to the market to buy cars. According to analysis, the current average APR for new cars is around 7%, while the average APR for used vehicles is about 11%. “So when you put these high pricing and high interest rates together, you suddenly have large monthly payments that surprise consumers,” claims Caldwell.

On the other hand, the market share for EVs is about 7% for 2023 and is still growing gradually every year. Caldwell believes, “Once we get past the adopters, people with high-income levels can afford these expensive EVs. Then what?” Most Americans do not fall within this income range. Therefore, more reasonably priced EVs are needed because, according to the most current Edmunds survey, lack of infrastructure and expensive costs are the main reasons people won’t purchase EVs.

Second half of the year

If dealers could offer their clients better loan rates, whether through the OEM directly or through banks, that message would be highly received by repeat consumers looking to buy cars. However, leasing has become extremely important for dealers selling EVs because the federal tax benefit applies to any leased vehicle. To illustrate, in November 2022, leasing penetration stood at 8%; by June 2023, it had risen to 44% and has been steadily increasing since.

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Jaelyn Campbell
Jaelyn Campbell
Jaelyn Campbell is a staff writer/reporter for CBT News. She is a recent honors cum laude graduate with a BFA in Mass Media from Valdosta State University. Jaelyn is an enthusiastic creator with more than four years of experience in corporate communications, editing, broadcasting, and writing. Her articles in The Spectator, her hometown newspaper, changed how people perceive virtual reality. She connects her readers to the facts while providing them a voice to understand the challenges of being an entrepreneur in the digital world.

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