Morgan Stanley Senior Vice President Investments Jim Lacamp joins ‘Varney & Co.’ to discuss the Federal Reserve’s next move and the growing debate over a possible rate cut in December.
Car prices are on the rise and the average cost of a new car is at a record high, approaching the $50,000 mark for the first time.
According to Edmunds data, the average transaction price for a new vehicle in October was $49,105. That means an annual increase of 3.1%.
“If you take all that away, you can hardly buy a car today that is cheaper than it was last year, two years ago, five years ago,” Drury said. “The average age at which you trade in a new car is currently around five and a half to six years old. People who bought at the prices in 2020 and 2019, and especially in 2019, are certainly in for sticker shock.”
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New car prices are approaching $50,000 on average for the first time, creating challenges for buyers. (David Paul Morris/Bloomberg via Getty Images/Getty Images)
“If you are a trade-in customer and you have not been to the dealer for anything other than service in the last six years, you may be surprised to see that the average transaction price is almost $10,000 more than the last time you purchased,” Drury added.
Average monthly payments on new vehicles sold in October saw a similar increase of 3.2% from a year ago and amounted to $766 per month. Interest rates moved slightly lower as the average APR fell from 7% to 6.9% in October.
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New car prices are significantly higher than they were five to six years ago, leaving buyers facing sticker shock when they want to trade in a car. (iStock / iStock)
Drury said there is a noticeable downward trend with interest rates on new car loans below 7% for the first time since December last year, but noted that car buyers with a six-year-old car were likely to have a loan at around 4% or 5% – meaning a new car loan will be noticeably more expensive to finance.
“The average interest paid today over the life of a loan, the average amount to be financed is $43,000; a 72-month term is the most common; you’re looking at $9,500 in interest alone – so you’re not even paying for the car at that point, that’s a privilege to borrow,” Drury said.
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Dealers have increased discounts because of rising sticker prices and higher interest rates. (David Paul Morris/Bloomberg via Getty Images)
Car dealers have raised prices average discount available to buyers, although these have offered modest relief. The average discount was $1,985 in January, reached a year-to-date high of $2,262 in June and was $2,240 in October.
“For dealers, they’re resorting to giving discounts. They’re getting money from car manufacturers to put money on the hood,” Drury said.
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“The average vehicle sits idle for about 60 days, which is considered acceptable by industry standards. But it also has to do with time in the parking lot, which dealers don’t want to be sitting there for that long because while it is acceptable, optimal is obviously lower; the fewer days in the parking lot, the better for them,” he said.
