New and used vehicle prices continue to climb to record high levels. On today’s show, we’re pleased to welcome Jessica Caldwell, Edmunds’ Executive Director of Industry Insights, to give us her take on how it may impact the overall market.
The average transaction price of a new vehicle was close to $42,500 last month. Caldwell says, what is happening now, is there is no discounting and incentives are vanishing. The scarcity is also making people pay more because they know that other buyers may want to purchase the vehicle. As a result, the prices keep climbing.
When it comes to affordability, Caldwell says, people are not able to afford these new vehicles because these price increases are going into the used market, which has kept those prices high as well. She says, for the past two years, the industry has been in a transition phase. Perhaps, we’ll see smaller more affordable options just not in the subcompact car.
Discounting is very minimal and low-interest rates are providing the only financial relief. The new vehicle average interest rate was about 4.5% last month. Caldwell says cars are something you don’t expect to pay MSRP for. She also says, now people are willing to shop for new or used vehicles because it’s not as if, the new vehicles have all the incentives and great finance offers. It’s an equal playing field.
Due to high transaction prices, down payments, and monthly payments at record levels for consumers financing vehicles. Caldwell says, with new consumers, you have to be financially secure at this point in time, in order to go down the road of a $35,000 and up vehicle or loan. The economy is a bit different than what we anticipated this time last year says, Caldwell.
Lack of new vehicle inventory is causing this spike in prices and new vehicle inventory is about a third of where it normally is and reports around the country are saying vehicles are being sold as soon as they are delivered to dealerships. Some consumers have reported being sold vehicles that have not yet been assigned VINs. Caldwell says, the microchip shortage is extremely fluid and can change daily. She says, anyone who is out here making predictions, you have to take them with a grain of salt.
The SAAR came in at 14.7 million in July but demand is probably in the 17 million range. In fact, April was the last month of decent inventory and SAAR was 18.5 million. For August, Caldwell says, it’s a good problem to have. Demand is so much higher than where supply is. She says at this point in August, you would have end-of-summer events and Labor Day deals, but this year, you may not have the inventory to go with these deals.
Caldwell ends the conversation on what automakers are doing well amongst the many issues the industry is facing. She says the South Korean automakers have done well and not suffering as much from the chip crisis. Hyundai, Kia, and Mazda have also marched through this as well.
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