If anything is true about today’s new car market, it’s new cars are way too expensive for many reasonable consumers in the United States.
Outside of major metropolitan centers like New York City and Chicago, public transportation like trains and buses are not viable alternatives to driving.
Because of this, we drive a lot. According to the latest edition of the American Automobile Association’s (AAA) American Driving Survey, 95.3% of U.S. residents aged 16 and older drove at least occasionally in 2023.
Don’t miss the move: Subscribe to TheStreet’s free daily newsletter
At the same time, the average American driver spent at least 60.7 minutes behind the wheel and drove 29.1 miles per day last year.
But even though this is the reality, cars are expensive and continue to be more expensive.
According to the latest available data from Cox Automotive, the average list price for a new car in the United States in August 2024 is $46,841, with average transactions that month amounting to $47,870.
Though Cox emphasizes that a third of the available models on the market have list prices below $46,000, the high prices of new cars have many buyers looking at used examples to score a great deal or finding creative ways to afford their new shiny piece of vehicular metal.
Honda vehicles parked outside a Honda dealership, on April 3, 2024, in Sherwood Park, Alberta, Canada.
Wicked tales from the dealership finance department
According to new data from Edmunds, a disturbing amount of auto buyers are taking on insane payment plans to afford their shiny new set of wheels.
Third-quarter 2024 data from Edmunds experts reveal statistics that would send personal finance experts like Dave Ramsey and Caleb Hammer into a fit of rage.
As the average new car loan APR balloons to a hefty 7.1%, buyers are paying the price to accommodate their new metal. In Q3, over 17.4% of new car buyers have subjected themselves to monthly car loan payments of at least $1,000, roughly 25% of take-home pay from the average American salary, according to the latest U.S. Bureau of Labor Statistics data.
Edmunds recognizes that this statistic is a pattern. Q3 2024 is the sixth consecutive quarter in which the rate of people taking on $1,000+ monthly payments was above 17%.
Though many local car commercials for various manufacturers still bait buyers into dealerships with supposed 0% APR financing, the fine print that potential buyers often tune out at the end of the commercial or cannot read from the screen cannot ring truer than the hard truth from the current data.
According to Edmunds, American college hopefuls have a higher chance of getting into Princeton or Yale than those who score a 0% APR financing deal on a new set of wheels. While the top schools respectively admitted 4.5% and 3.73% of applicants for spots in the class of 2028, just 3% of auto finance deals in Q3 of 2024 were at 0% APR.
More Automotive:
The Buick Envista is America’s wake-up call for Chinese carsFord CEO says he’s sick and tired of making ‘boring’ carsNew study reveals a cold, harsh truth for thrifty new car buyers
Of course, it all comes down to customer credit. In the era of credit cards, deferred “pay later” payment plans like Klarna, and other credit-sucking commitments, most buyers simply do not have the kind of rigid credit history required to secure such a low rate. What Edmunds found was that in order to stomach the payments for the insanely high prices of their new cars, buyers are signing onto longer and longer payment periods.
According to Edmunds, 69% of new car loans had terms over 60 months in Q3 2024, while 84-month (seven years) loans are on the rise; accounting for 18.1% of payment plans in Q3 2024, up from 17.3% in Q2 and 15.8% in Q1.
Seven years is a long time. By the end of that elapsed period, most American children were already in the second grade, new fads and fashion trends had emerged and faded away, and new car technologies had managed to lure tempted buyers back onto dealership lots.
To make matters worse, buyers also run the risk of having to service cars out of warranty, which can be a nightmare in itself.
The simple truth is that some buyers aren’t committed to keeping a car that long, which can have dire financial consequences for some buyers.
“Longer loan terms might make monthly payments more palatable for consumers, but the harsh reality is that most Americans don’t want to keep their vehicle for seven years,” Edmunds’ director of insights Ivan Drury said in a statement.
“Simply put, longer loan terms put car owners at greater risk of rolling negative equity into their next auto loan.”
Related: Veteran fund manager sees world of pain coming for stocks
