Interest rates pinch car buyers, Ford's $30K EV, Fisker aims to ditch remaining supply

Hey, everyone. Here’s a wild auto lending stat I came across recently. According to Experian, dealers are using captive finance companies at levels not seen since 2010 (!)

Captive = Lender owned by a car manufacturer.

Why are OEM financial arms capturing so much market share right now? It’s simple — they’re offering subvented interest rates to help drive sales. This is a *major* shift from just 18-24 months ago when credit unions were leading the pack. Interested to see how this trend plays out for the rest of 2024.

—CDG

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Each week, I curate the top 5 automotive industry headlines based on the topics CDG readers engaged with the most on social media. Let’s get started.

1. Car prices dip, but interest rates keep buyers in park

So, buying a car has gotten a bit easier lately with over a million more units in stock than last year and increasing incentives. The average incentive spend per unit for June is expected to be up $889 year-over-year. On the other hand, financing is still a major headache for a lot of folks. The analysts over at Edmunds have some insights on this.

• Auto loan rates are mixed: For new car loans, the interest rates have inched up to 7.3% APR in Q2 2024, compared to 7.1% in Q1. On the flip side, used car rates dipped a tiny bit to 11.5% from 11.7% in Q1, but that's still higher than the 11% we saw in Q2 2023.

• [takeaway?]: Now, if you're looking at new car loans, they're averaging around 69 months, with monthly payments climbing to $740 from $735 in Q1. For used cars, the loans average about 69.7 months, with payments going up to $552 from $546 in Q1.

So, while there are some positives, the cost of financing is definitely something to watch out for.

Here's the deal: The Fed’s stance on interest rates is keeping auto loans pricey. In late May, the Fed said it won’t cut interest rates until it's confident inflation will slow to a 2% target. Since last August, the central bank has kept its key rate at around 5.3%, the highest it’s been in two decades.

The bottom line: While buying a car is getting a bit easier in some ways, high financing costs are still a major hurdle. With the Fed keeping interest rates high, it might take a while before buyers see any real relief.

Automakers are not oblivious to this and, to make new cars more affordable, they’ve rolled out major incentives, cash discounts, and lease deals (especially on EVs). But some OEMs are going a step further to tackle high vehicle costs…

2. Ford CEO Jim Farley: A profitable $30,000 EV is on the horizon

At the Aspen Ideas Festival, Ford CEO Jim Farley spilled the beans that Ford is gearing up to launch a $30,000 electric vehicle. According to CNBC, they’re expecting this EV to start turning a profit in about two and a half years.

Big picture: Farley didn't give away too much about the new $30,000 EV, which a special team at Ford is working on. He did mention that its main competitors will probably be Chinese automakers like BYD and maybe an entry-level Tesla, although that one seems to be on hold for now.

To give you some context: Earlier this year, Ford pushed back the start of making a big three-row SUV to 2027. They also delayed a next-gen pickup, codenamed “T3,” to 2026 to focus on smaller EVs first, instead of the larger trucks and SUVs that have historically been their big profit-makers.

What we're watching: This new affordable EV is aimed at lower-income buyers who might not have the means to install or access reliable charging (think shared housing communities). The big question is whether these lower-priced EVs will actually encourage adoption among these folks.

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In addition to pricing adjustments, many automakers, like Ford, are facing an uphill battle with quality control and vehicle recalls…

3. Vehicle quality concerns persist as Ford, Tesla grapple with recalls

In Q2, there were 115 vehicle recalls in the U.S., up from 105 in Q1, but the number of affected vehicles dropped meaningfully to around 4.6 million, over 5 million fewer than in Q1.

What's happening: Chrysler led the pack with 14 recalls, followed by Ford with 12. Ford also had the most vehicles affected, with 1,380,879 units.

Looking back: Earlier this year, Ford CEO Jim Farley shared his regrets over the high number of recalls. Now, Ford is delaying the delivery of many newly redesigned cars by six weeks for additional quality checks.

What's more: With cars becoming more connected through software and internet capabilities, many recalls are now cost-effective over-the-air (OTA) updates. Yet, the exact number of OTA updates compared to overall recalls is a bit of a mystery. ABI Research estimates that recalls could save OEMs about $1.5 billion by 2028. Ford alone paid $4.78 billion in warranty claims in 2023.

The big picture: According to Stanford Law School, all OTA updates count as recalls, but not all recalls are OTA updates. This is especially true for Tesla, where most recalls are OTA updates.

Speaking of Tesla, the EV maker’s latest quarterly deliveries report showed declines in both production and sales but still beat analyst expectations…

4. Tesla loses ground in Q2 as competitors' EV sales surge

Why it matters: Tesla is the top player in the EV market, so how it performs gives us a good sense of broader industry trends. Analysts expected weaker demand for Tesla and EVs in general to continue into Q2, but they underestimated the spring sales season, which was stronger than expected across the car market.

By the numbers: Tesla delivered 443,956 vehicles and built 410,831 between April and June. These numbers are down 4.8% and 14.4% respectively from last year. However, this is better than the previous quarter, which saw an 8.5% drop in deliveries year-over-year.

Zooming out: Tesla did better this quarter but still couldn’t stop the yearly drop in demand. Meanwhile, other electric car makers like Kia and Hyundai are seeing big sales growth, showing that Tesla's market share is shrinking. Tesla now controls just over 50% of the U.S. EV market.

Yet, Tesla has managed to do what so many other EV brands haven’t been able to achieve, especially the now-defunct Fisker.

5. Fisker's bid to sell off Ocean inventory in jeopardy

Fisker is trying to sell its remaining electric vehicles for as low as $14,000 each after declaring bankruptcy in June.

What's happening: The Delaware bankruptcy court is deciding whether to let Fisker sell its entire inventory of 3,231 Ocean SUVs for $46.25 million to New York car lease firm, American Lease. There's a catch, though: the judge might deny the request. Fisker’s creditors, who are owed about $1 billion, worry they won't see any of the sale money.

Fisker’s lawyers are pushing to sell at least 200 EVs (worth $2.8 million) by July 12. They’re saying that without this cash, the company won't be able to cover essential expenses for a smooth liquidation.

What we're watching: American Lease plans to buy each Ocean SUV for $2,500 to $16,500, depending on their condition, and they'll get access to Fisker’s source code to update the software. Unfortunately, other Fisker owners won’t be so lucky. Without software support, their SUVs will eventually stop working.

That’s a wrap for now – make sure you’re following along on X, LinkedIn and IG for more real-time updates.

Thanks for reading. Hit reply and let me know if you found this week-in-review valuable or have any feedback. I’ll see you next weekend.

—CDG

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