(NewsNation) — For much of the year, automakers have had a supply problem, but as production ramps up and interest rates continue to rise, now they’re worried about the opposite: lower demand.
Those fears are driven primarily by affordability concerns. With an average transaction price of $48,681, Americans who bought new vehicles last month paid more than ever. according to Cox Automotive
That high price is mainly due to strong luxury vehicle sales, said Michelle Krebs, an executive analyst at Cox Automotive, noting that new-car buyers in today’s market tend to be wealthier.
Overall, new vehicle prices increased 7.2% compared to last year, according to this week’s inflation report.
But the high sales price is only part of the total cost. On Wednesday, the Federal Reserve announced another half-point interest rate hike as part of an ongoing effort to curb inflation. Those increases are hitting auto loan interest rates, which have skyrocketed in recent months.
Those with lower credit scores tend to pay higher rates, but industry experts say even people with impeccable scores are seeing loans with costly terms.
“We just got a credit score of 820 listed 8% from Capital One and 10% from Ally for a CAR LOAN,” CarDealershipGuy, the anonymous CEO of a car dealership group behind a popular industry newsletter, tweeted this week.
Meanwhile, car dealer confidence has fallen to its lowest level since the start of the COVID-19 pandemic. according to a recent report from Cox Automotive. That is an indication that more traders view the current market as weak than strong.
New vehicle sales volumes decreased in November compared to the previous month.
“Production is picking up, inventory is picking up, but consumers are starting to slow down sales due to high interest rates and a potential recession,” Krebs said.
Last month, the supply of unsold new vehicles in the US stood at 1.64 million units, the highest level since May 2021. according to Cox Automotive. That’s still well below the November 2019 supply of 3.55 million vehicles, but marks an 81% increase from this time last year.
Despite the improvement in inventory levels, the average listing price for a new vehicle in the US it’s up 4% from last year, at $46,823.
It’s not all bad news for consumers, especially those looking to buy a used car.
Wholesale used vehicle prices are down more than 14% compared to a year ago, according to cox. The used vehicle inventory has recovered to 2.44 million unitswhich is close to pre-2019 pandemic levels.
The average listing price for a used car is about half that of a new one, meaning those who can pay cash will avoid interest rates altogether.
“We have never seen this level of people paying cash for vehicles,” Krebs said.
It remains to be seen whether automakers will try to lure consumers back in by reintroducing incentives like cash rebates or low-interest financing.
Today the average incentive package it is only 2.2% of the average transaction price. By comparison, in November 2019, the average incentive package was 10.6% of the average transaction price, according to Cox.
For now, automakers will be happy to have vehicles to sell, but as we head into 2023, all eyes will be on consumer demand.