Car buying dreams meet harsh market realities: survey

Americans continue to be frustrated with car prices that don't match their budgets, and despite some positive signs in the market, affordability is still out of reach for many, according to a new Edmunds survey.

Flashback: A lot of shoppers returning to the market are coming in with outdated expectations. The last time many of them bought a car was around 2018 (the average trade-in is 6 years old). Back then, dealerships had too much inventory, interest rates were low, and manufacturers were giving out incentives left and right. But now, average new car prices are staying above $47,000, and auto loan interest rates for new cars average over 7%.

State of play:

• Edmunds found that 48% of new car shoppers want to spend under $35,000 — over $10,000 less than the average transaction price. 

• Buyers are also still hoping for low rates — 75% want interest rates between 0.1% and 6%, with 37% looking for rates between 0% and 3%. But the reality is that 60% of new car loans are being financed at rates between 4% and 9%.

• Used car shoppers are also feeling the financial strain. Half of them want to pay $15,000 or less, but only 5% of transactions fall into that range. With used car prices around $27,000 and interest rates at 11.3%, many consumers can't even afford the used market.

Why it matters: As car prices and interest rates stay elevated, more consumers are being priced out or forced into less desirable choices. This mismatch is pushing car buyers to make tough decisions:

• 73% of consumers report they have held off on purchasing a new vehicle because of high prices.

• Over half say they are planning to work more hours or even take on a second job to afford their next vehicle.

• Many are settling for older cars, smaller models, or different brands instead of that shiny new car.

Big picture: More inventory and higher incentives have provided some pricing relief. But, they haven't solved the core problem. New car prices are up due to more than supply shortages. Inflation, rising material costs, and a shift to expensive, high-tech models have all pushed prices higher.

Bottom line: While the worst pandemic-fueled price hikes may be behind us, affordability remains a moving target. For many consumers, the choices are narrowing: stretch the budget, settle for less, or sit it out. As for interest rate cuts? A 25 – 50 basis point cut is still on the table, but as many have pointed out, the impact on auto loan rates will probably be minimal at best.

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