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Automakers need to do some serious navel-gazing about price levels and lift levels, if they want to sell more cars.
By Wolf Richter for WOLF STREET.
To illustrate the data we’ll look at in a moment, I “built” a 2023 model year F-250 Lariat on Ford’s website: MSRP $104,070. I could build something more expensive in the F-350 lineup. Ford suggested financing it with Ford Credit. With a down payment of $10,407, and a term of five years, at 5% APR, I would end up with a monthly payment of $1,768. Screenshot from Ford’s website:
There is a wide range of options and trim packages, especially on trucks. I also “built” a 2023 F-150 Lariat, and it ended up with an MSRP of $90,780. Ford suggests leasing it from Ford Credit with $9,014 down, over 48 months, for $1,007 per month. Screenshot from Ford’s website:
According to Experian’s State of the Automotive Finance Market report for loans originated in Q3 2022, the average monthly payment for the F-150 in Q3 increased to $893 a month; for the Ram 1500, it rises to $860; for the Chevy Silverado 1500, it rises to $808.
Pickup trucks have long been among the best-selling new vehicle segments in the US. They are a big part of the business. Ford didn’t take EVs seriously until Tesla threatened to build a pickup five years ago. That’s when Ford got religious and dove into EVs and came out with an electric pickup to defend its core turf, while we were still listening to Tesla threatening to come out with one. Ford lives and dies by its pickups.
And automakers have improved them over the past two decades because the money is in the upscale, and they’ve released high-end models and equipment packages that push pickups into the luxury segment, and they’ve raised prices, and they Earning a lot of income from them.
But other popular cars have big fees too. These are the average payments for several models, according to Experian:
For all new cars, the average amount financed in Q3 – after down payments, trade-ins with spiking trade-in values, etc. – rose 10.4% from a year ago to $41,665, according to Experian, up 20% from Q3 2020 ($34,678).
The average new auto loan rate increased to 5.2% in Q3, from 4.1% in Q3 2021 and from 4.2% in Q3 2020.
So the average new car loan payment jumped 13% year-over-year to $700 a month. Over the past two years, the average payment has increased by 24% (from $565 in Q3 2020).
Average loan terms for new cars are up slightly from a year ago, after dipping the previous year:
- Q3 2019: 69.0 months
- Q3 2020: 69.6 months
- Q3 2021: 69.5 months
- Q3 2022: 69.7 months.
But there are differences: Consumers with a “super prime” credit rating averaged the shortest loan terms, while “near prime” and “subprime” averaged the longest terms:
- Super prime: 64.1 months
- Prime: 71.2 months
- Near Prime: 74.7 months
- Subprime: 74.2 months.
The share of loans with very long loan terms grew; and interestingly, the share of short loan terms has grown as well perhaps as consumers are trying to benefit from lower interest rates in that range. But part of the middle range, loans with terms of 5-7 years, was rejected:
- Increased: 85 months and longer: share grew to 1.8% of total loan originations in Q3 2022, from a share of 1.3% in Q3 2020.
- Increased: 73-84 months: the share grew to 34.6%, from 28.9% in Q3 2020.
- Down: 61-72 months: share dropped to 36.7%, from 44.6% in Q3 2020.
- Down: 49-60 months: when I was in the business, it was as far as you could go; the share fell to 16.6% from 19.7% in Q3 2020.
- Up: 48 months and shorter: interestingly, the share jumped to 10.3% from 5.5% in 2020.
Who made the loan?
Credit unions’ share jumped to 28.8% of all new auto loans originated in Q3 2022 (red line), while banks’ share fell to 29.5% (blue), and in its own divisions of automaker finance (“captive finance”) , while still #1, fell for the second quarter in a row, to 35.3% (gray):
Sad sale.
The high cost of new cars – and the high amount of payments they require even with interest rates still relatively low – explains why, over the years, the number of new Car sales in units have been a dismal affair for more than two decades: in 2022 it will be on track where sales went in the late 1970s.
This year has been troubled by supply chain disruptions. But even the sales of Good-Times-2019 are less than the sales of the year 2000.
If the auto industry wants to sell more cars, it needs to do some serious navel-gazing about price levels and lifts (WOLF STREET’s official estimate for December sales includes 2022, better than last December):
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