High vehicle prices and challenging interest rates are deterring many potential car buyers from purchasing new vehicles, according to a recent report by Edmunds. The used car market is similarly affected.
The August report highlights that the pre-pandemic vehicle shopping environment led to “skewed perceptions of affordability” among current car shoppers. Jessica Caldwell, the report’s author, emphasized the importance for automakers and dealers to recognize this perception gap. She stated, “[I]t’s critical for automakers and dealers to know the perception gap exists in order to offer a level of compassion for customers,” adding that these individuals are making significant sacrifices to afford a vehicle.
Edmunds found that this misconception about pricing persists in both new and used vehicle markets. Nearly half of surveyed new-car shoppers aim to spend $35,000 on a new car, reflecting average transaction prices from 2018. However, as of July 2024, the average transaction price was $47,716 with almost no transactions under $20,000.
Similarly, 50% of used-car shoppers want to pay $15,000 or less while 64% would like to spend $20,000 or less. In contrast, the average transaction price for used vehicles was $26,938 in July with only 5% priced at $10,000 or below.
Interest rate expectations also diverge from reality. New-car shoppers prefer rates between 0% and 3%, yet the average annual percentage rate (APR) stood at 7.1%. For used cars, while most shoppers would accept an APR between 0% and 4.99%, the average was much higher at 11.4%.
Caldwell noted that many consumers are unaware of how inflation and additional features have increased vehicle prices over time: “Given transaction prices were $12,000 less six years ago…”
Other factors such as high gas prices and rising repair costs further exacerbate affordability concerns. On average Americans spend nearly a quarter of their income on auto expenses if financing a new car.
Insurance costs have risen sharply too; Insurify projects an annual full-coverage premium reaching $2,469 by year-end due partly to severe weather events driving up claims costs.
In response to these challenges some Americans retain older vehicles longer—the average age reached a record high of 12.6 years in 2024 according S&P Global data.
However there may be positive developments ahead: Kelley Blue Book observed manufacturers increasing incentives since June which could benefit buyers especially those with excellent credit who might access low-interest offers or lease deals through careful shopping around both when buying new cars or trading-in old ones.
