Interest-rate hikes from the Fed are raising average monthly car payments despite falling prices for used cars, according to a study.
The average monthly payment for used cars is 47% higher this year, hitting $551 a month, as compared to 2019, according to analysts at Cox Automotive, a platform that facilitates faster vehicle transactions.
The firm expects monthly car tabs to keep increasing, touching $570 by the end of the year, with the trend continuing in 2023.
“There’s been a marked shift in consumer and dealer sentiment about where the used vehicle market is headed as we close out the year,” wrote Dale Pollak, the executive vice president for Cox Automotive and the founder of VAuto, a platform that provides live market views to new and used inventory management for the automotive industry, in an analysis for the platform.
The Fed’s aggressive, inflation-fighting policies are hastening an “affordability crisis” in the used vehicles space, said Jonathan Smoke, Cox Automotive’s chief economist. Higher rates coupled with a potential recession are adding flames to the fire, he added.
Carvana recently reported sales of 102,570 vehicles, down from 117,564 from the third quarter of the previous year.
Used car dealers are struggling with significant drops in sales. Michael Ward, an Equity Research Analyst covering the automotive sector with Benchmark, said that used car sales were down 13% in the third quarter, compared to last year.
Carvana, the online car dealer, recently reported sales of 102,570 vehicles, down from 117,564 from the third quarter of the previous year.
Cox Automotive analysts have lowered their projections of retail used vehicle sales in 2022 to 19.1 million, down almost 2 million units from last year.
Affordability and supply chain issues will be carried forward in 2023, dampening demand and sales even further, the firm said.
The auto industry has been struggling with supply chain issues since the pandemic. With the shortage of semiconductor chips, car dealers were able to push prices above MSRP. Sales volume, however, dropped.
New car sales are estimated to close at 13 million units in 2022, approximately three million below the levels of previous years.
New car prices are also beginning to cool. They are still selling for more than the manufacturers’ sticker prices on average, but are closer to the MSRP.
A number of brands are selling their models below the sticker price, something that was once normal but that had become rare over the past year or more.