New car prices are still rising, but for the last few months used car and truck prices have drifted lower. They’re still much higher than before the pandemic but a new study by automotive marketplace iSeeCars.com has identified more models with “affordable” sticker prices.
“Used cars have become slightly more affordable in the past 11 months,” Karl Brauer, executive analyst at iSeeCars.com, told ConsumerAffairs. “Twenty-three used cars gained affordable status but two fell out, so it’s a net gain of 21 used cars that are affordable in September of 2023 over October 2022.”
Yes, interest rates on auto loans continue to rise but household income has also risen. Slightly lower used car prices have aided affordability. New cars? That’s a different story.
“New cars are less affordable than they were 11 months ago,” Brauer said. “The monthly payment increased by an average of 11.3%, or $91.”
Consumers thinking about an automotive purchase now have to factor in the strike by the United Auto Workers (UAW) union, now in its second month.
George Faracchio, vice president of Auto Lenders, says the strike has the potential to raise prices for both new and used cars.
Supply and demand
“As the strike hampers the flow of vehicles to dealerships, it may contribute to a scarcity in the market, driving up prices,” Faracchio told us. “Long-term, the substantial increase in wages will have to be passed on to the end consumer.”
“Undeniably, if another month goes by, we get the October numbers, we get into November and we’ll likely see these numbers move in the other direction because the UAW strike is like a mini COVID. It’s not driven by a health concern but the effect is the same,” Brauer added.
Pete DeVito is the automotive director for the United Service Workers Union (USWU) and represents over 5,800 auto workers across New York, New Jersey, and Connecticut. He says new cars are already expensive, an average of $10,000 more than before the pandemic. The strike, he adds, won’t have much effect on prices.
“Most local dealers did their best to have extra inventory in the weeks and months ahead of the strike. Dealers have between 60 and 90 days worth of vehicles,” DeVito told ConsumerAffairs. “They also will get the cars and trucks that have already been built and are in their ‘pipeline.’”
But all the experts we consulted agree that when cars are available, they’ll probably be more expensive than buyers are accustomed to paying. That makes financing a critical decision – finding the right car at the right interest rate to arrive at an affordable monthly payment.
How much car can you afford?
Personal finance experts have long recommended a firm rule for financing a vehicle. Never spend more than 35% of your annual income on a vehicle; put 20% down and don’t take out a loan for more than 48 months. With today’s prices, that rule is almost impossible to obey.
Automotive publisher Edmunds reports that in the third quarter, a record 17.5% of car owners have a monthly payment of $1,000 or more. Six-year loans are now common. Already, loan delinquencies are rising.
“In 2023, it is anticipated that defaults and repossessions will rise compared to 2022 but are not projected to reach critical levels,” Faracchio said. “This expectation is based on a robust job market and stable vehicle values, which should help maintain relatively low levels of defaults and repossessions.”
So what’s a car buyer to do? Buy now or wait to see if inventory levels increase and prices fall?
“Up until a month ago I was advising people to wait,” Brauer said. “But now we have the UAW strike.”
Still, Brauer thinks there will be less demand for cars in six months than there is now, taking some of the pressure off of prices.
Photo Credit: Consumer Affairs News Department Images
Posted: 2023-10-19 11:03:47
