New Car Buyers Are Getting Squeezed

New car buyers are getting squeezed as both car prices and interest rates continue to climb in Q3 2022. This makes new cars unaffordable for many.

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New car prices continued to increase in 2022. The average transaction price is now just over $48,000. Hereby a new is out of reach for many. Yet, the situation is getting worse and worse as the increase in interest rates is accelerating the increase in the average monthly payment. Consequently, the percentage of loans issues to people with a relatively low credit score is at an all time low.

It does not look like this will improve quickly. New car supply is up from last year but still 63% below 2019. Moreover, supply is increasingly focused on the luxury market as those cars have higher margins. In other words, there is no direct need for manufacturers to resolve the current situation; they have the pricing power. Though, there are differences between the brands. Land Rover for example charges more above MSRP than RAM or Alfa Romeo.

A change in the price trend might be caused by a drop in supply. Cashable deposits for the lowest income groups are decreasing at a rapid pace and at current inflation levels it is a matter of time before this will effect medium and high income earners. This, in turn, will effect demand for new cars.

Another issue to consider is that many manufacturers are not yet able to use their unutilized capacity. There is still a chip shortage and there are severe deficiencies in the supply chain. According to automotive experts, this means that the shortages will last till 2023 or even 2024.
New car buyers therefore need to account for high prices and high monthly payments. Given the current situation it is unlikely that prices will drop significantly. Yet, the should start to move towards MSRP.

00:00 More unaffordable than ever
00:43 Low-end buyers are pushed out of the market
01:57 Interest rates
04:16 Do car manufacturers care?
05:43 Supply situation
07:28 When will prices come down?
10:15 Wrap-up