Navigating the Evolving Automotive Landscape: Insights and Strategies for Savvy Consumers
In the ever-changing world of the automotive industry, staying informed is crucial for consumers seeking the best deals and making informed purchasing decisions. The Kiplinger Letter team, with their wealth of experience, delves into the latest developments and forecasts to help you navigate this dynamic landscape.
Unlock the Secrets to Scoring the Best Deals in the Shifting Auto Market
Shifting Tides: Softening Prices and Changing Buying Trends
The automotive industry is undergoing a significant shift, with high prices finally weighing on sales. Consumers are becoming more cautious, either tapped out or holding off on purchases, as they anticipate a potential decline in prices or wait for the Federal Reserve to start cutting interest rates. However, experts suggest that it may be a long wait before these rate cuts meaningfully lower the cost of financing a vehicle, with the first reduction unlikely to occur before the election.While total vehicle sales have seen a slight uptick, this gain is primarily driven by an increase in leasing, up by 30%, and sales to rental fleets and other buyers. Actual sales to individual consumers have declined by 2%. This shift in buying trends has significant implications for the market.
Softening Prices and Emerging Deals: Navigating the New Landscape
As a result of these changing dynamics, both new and used car prices are expected to soften over the rest of the year, continuing the declines already observed. New cars are now being sold at an average of 97% of the list price, down from 102% in 2022. Financial incentives have also made a comeback, averaging 7% of transaction prices, though still below the 10% level seen in 2019.The used car market has also seen a significant shift, with prices down 23% from their 2022 peak. However, they remain 25% higher than the pre-pandemic levels, indicating that the market is still adjusting.As the 2025 models start to roll out, consumers can expect to see more and better deals on the 2024 models still on dealer lots, as well as even deeper discounts on the handful of 2023 models. In fact, 6% of dealer inventory is currently made up of 2023 model cars, with Dodges and Chryslers being the most common.
The Rise of Leasing and Fleet Sales: Implications for the Used Car Market
The surge in leasing and fleet sales has significant implications for the used car market. Many of the leased vehicles will eventually be resold as certified, pre-owned (CPO) vehicles in 2027 or whenever their leases are up. Historically, CPO vehicles have offered good warranties, low mileage, and relatively few problems, making them an appealing option for value-minded shoppers.
Financing Challenges and Shifting Buyer Profiles
The rising cost of financing is also impacting the buying power of some consumers. The average rate on a new-car loan now stands at 7.3%, while the rate for a used car is 11.5%. As a result, many borrowers with less than prime credit have been priced out of the market, and the share of loans that are delinquent has risen from 5% in 2022 to 8%.Interestingly, the affluent buyers, buoyed by rising stock and home values, are increasingly opting to pay for their cars with cash, further shaping the dynamics of the market.
Hybrid Dominance and the Evolving EV Landscape
Hybrid vehicles continue to be strong sellers, with Toyota commanding half of the hybrid market, followed by Honda at 20%. Plug-in hybrids, which can drive modest distances on battery power, are also gaining in popularity, with Jeep seeing good demand for its plug-in hybrid Wrangler and Grand Cherokee.While electric vehicle (EV) sales have plateaued for now, accounting for 7% of the market, there is a significant inventory on dealer lots, with 104 days' worth of supply at the current selling pace, compared to 73 days of supply for the overall car market. Leasing is particularly high among EVs, suggesting a potential glut of used ones in the future. Despite the availability, many consumers remain wary of EVs, but a significant portion indicate they may reconsider in the coming years.As the automotive industry navigates these shifting trends, staying informed and adaptable will be key for consumers to make the most of the evolving market conditions and secure the best deals on their next vehicle purchase.
