Following the onset of the pandemic in early 2020, the automotive market was upended by production challenges and supply chain issues, which – coupled with strong demand – sent new and used vehicle prices soaring to new record highs. Even though inventory has largely returned to normal levels, continued high demand means that prices likely won’t fall much in 2024, which is a big concern when we factor in the high interest rates we’re currently dealing with as well. Terms have improved slightly this year thus far, but average new vehicle finance payments remain high, all as the percentage of new vehicle loans with monthly payments of more than $1,000 set a new record to close out 2023. Thus, it’s no surprise that car shoppers are feeling the impacts of high interest rates, according to a new report from Edmunds.
Unfortunately for shoppers looking for a bit of relief, Edmunds notes that interest rates continued to climb in Q1 2024, as the average annual percentage rate (APR) for new vehicles was 7.1 percent in Q1 2024, which was the fifth consecutive quarter that figure has remained above 7 percent. Even used-vehicle APRs grew by one-tenth of a percentage point to 11.7 percent versus Q4 2023 as well. On the bright side, the average monthly payments for both did decline slightly – coming in at $735 for new vehicles versus $739, and $546 for used models, down from $561. The average payments over $1,000 also declined slightly, from 17.9 percent to 17.3 percent.
However, negative equity remains a concern for shoppers as well, at least those that purchased a vehicle at the height of the market the past few years. The share of new-vehicle purchases involving trade-ins with negative equity rose to around one-quarter of all sales in Q1, reaching 23.1 percent, which is up from 18.3 percent last year and 14.7 percent in Q1 2022. The average amount of negative equity on those trade-ins reached an all-time high of $6,167 in Q1 2024, too.
“Punxsutawney Phil may have predicted an early spring, but high interest rates continued to cast a dense shadow over the car market in Q1,” said Jessica Caldwell, Edmunds’ head of insights. “Compelling new product launches combined with the reintroduction of incentives and rebounding inventory in the new vehicle market are all positive signs for shoppers, but elevated interest rates have dampened any positive market momentum. The resurgence of negative equity is only compounding the affordability challenges, as consumers who regretted their pandemic-induced purchases are now encountering lower-than-expected vehicle values when returning to dealerships for a new purchase.”
We’ll have more on the state of new vehicle prices soon, so be sure and subscribe to Ford Authority for 24/7 Ford news coverage.
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