IRVINE and SANTA MONICA, Calif. –
While the cost of new vehicles continues to climb, the newest data from Edmunds indicated finance companies are finding ways to mitigate their risk when booking new-model paper.
On Wednesday, Edmunds experts reported the average down payment for new vehicles financed in June rose to the highest amount seen all year, increasing to $4,451.
Furthermore, Edmunds determined the average contract term for the June new-car paper dipped below 70 months for the first time since February.
Edmunds also indicated interest rates for new vehicles increased slightly in June. The annual percentage rate (APR) on new financed vehicles averaged 4.2% in June, compared to 4% in May and 4.3% in April.
Despite this slight month-over-month increase, analysts noted that this is still the second-lowest average interest rate that Edmunds has on record since September 2015.
Edmunds data also shows that zero-percent finance offers took a dip for the second month in a row in June but remained at near-record levels. These deals constituted 19.4% of all new financed purchases in June, compared to 24% during the previous month.
“Although car shoppers still got to take advantage of favorable financing conditions in June, all signs point to automakers pulling back on the more generous incentives introduced at the outset of the pandemic,” Edmunds executive director of insights Jessica Caldwell said in a news release.
“As states across the country have reopened, consumers have resumed more of their regular purchasing habits, and as inventory levels decline, automakers understandably are less prone to spend big to spur demand,” Caldwell continued.
“It might not seem like a positive for car shoppers, but it’s probably for the best that loan terms are returning a bit closer to Earth after skyrocketing for months,” Caldwell went on to say. “At zero-percent financing, a six- or seven-year loan could make sense for a responsible buyer, but for many Americans, relying on longer loan terms to justify their bigger vehicle purchases could put them at greater risk for negative equity in the future.”
That negative equity stems in part to how much new vehicles costs nowadays.
ALG, a subsidiary of TrueCar, projected June average transaction prices (ATP) for new vehicles to be up 3.2% or $1,117 from a year ago but down 0.2% or $88 from May.
“Average transactions prices continue to tick up year-over-year, but we are seeing signs of decline and expect a small dip in average transaction price month-over-month as automakers slowly pull back from zero percentage financing over 84 months that helped spur demand for higher price models and trim levels,” ALG chief industry analyst Eric Lyman said in a news release.
“While incentives are still up year-over-year, the aggressive incentives that came out fast and furiously in April and May to help alleviate sales pains are beginning to soften due to low inventory and assembly plants that are still not back to full production,” Lyman continued.
“Retail sales over the Fourth of July holiday weekend will be the next big test of industry’s strength and resiliency and will be a litmus test for automakers in deciding to further pull back on incentives,” he added.
Meanwhile, the valuation analysts at Kelley Blue Book reported the estimated average transaction price for a light vehicle in the United States was $38,530 in June. They computed new-vehicle prices increased $1,141 (up 3.1%) from the same month last year, while rising $160 (up 0.4%) compared to last month.
“Though Q2 sales are expected to be down 35% due to COVID-19 and the ensuing economic recession, transaction prices over this time strengthened more than normal,” Kelley Blue Book analyst Tim Fleming said in a news release.
“The industry average climbed 3% — helped by increases in non-luxury cars —and light truck sales mix at around 75% of the total market,” Fleming continued. “Today’s new-car buyers are likely more financially secure despite the economic uncertainty, and they are purchasing a disproportionate number of trucks and SUVs. However, buyers are still shying away from luxury brands, which saw prices dip 1.5%.”
New-Car Finance Data (Averages)
|
June 2020 |
June 2019 |
June 2015 |
|
|
Term |
69.9 |
69.7 |
67.9 |
|
Monthly Payment |
$568 |
$562 |
$492 |
|
Amount Financed |
$34,911 |
$32,824 |
$29,008 |
|
APR |
4.2% |
6.0% |
4.6% |
|
Down Payment |
$4,451 |
$4,135 |
$3,308 |
Source: Edmunds