Price & Rates Starting to Brake Auto Sales: TruCar Reports
Inventories are improving, but the cost of financing a new car has risen much faster than disposable income.
Estimates show October sales for new cars are up substantially from a year ago, as factories are finally delivering more cars to dealers.
But analysts said this week that the combination of rising interest rates and sustained high prices are creating a rising affordability barrier for buyers.
TrueCar Inc., an online automotive marketplace based in Santa Monica, Calif., on Friday estimated that 1.1 million new cars and light trucks were sold in October, or a seasonally adjusted annual sales rate (SAAR) of 14.6 million vehicles.
Zack Krelle, an industry analyst at TrueCar, said the October sales pace is about on par with September after adjusting for selling days.
“With the backdrop of increased interest rates and sustained elevated pricing, the limiting factor for sales may be shifting from inventory to affordability,” Krelle said.
Cox Automotive, an Atlanta-based analytics company, on Tuesday estimated October sales would reach an SAAR of 14.3 million — the fastest pace since April. It would be an increase from 13.5 million in August and 13.2 million in October 2021.
Charlie Chesbrough, senior economist at Cox Automotive, said the new car market was suffering from a severe shortage last fall, but inventories have improved since then, particularly over the last three months.
“The vehicle market is being supported by improving inventories and product selection for some, but not all, brands,” Chesbrough said. “However, rising interest rates are pushing monthly payments higher for everyone, and many potential buyers are being knocked out of the market.”
Part of the affordability issue is stagnating disposable personal income. The U.S. Bureau of Economic Analysis on Friday reported that disposable personal income was essentially unchanged from August after adjusting for inflation. It has decelerated from a 0.5% gain in July and a 0.2% gain in August.
Without adjusting for inflation, disposable income per person in the third quarter was 1.8% higher than a year earlier, while TrueCar estimates the average transaction price for a new car in October was 2.9% higher than a year earlier.
TrueCar estimates the average new car sold for $44,625 in October, down $220 from September, but up $1,273 from a year earlier.
But interest rates have been the pain multiplier. The average interest rate on new vehicles is 6.3% in October, up from 6% in September. The average term in October is about 70 months, according to TrueCar.
TrueCar estimates that October’s average used car interest rate is about 9%, and the average term is about 71 months.
Cox Automotive found the average used vehicle interest rate topping 16% in October, which Chief Economist Jonathan Smoke said Tuesday “is a level we haven’t seen in more than 15 years.”
Prices and interest rates were a major reason Cox Automotive lowered its forecasts on Sept. 28 for 2022 sales for both new and used cars. It forecast that new car sales will fall 8.1% to 13.7 million this year, while used car sales will fall 10.6% to 36.3 million.
TrueCar estimates almost 3 million used cars will be sold in October, down 13% from a year ago and even with September 2022.
A Cox Automotive survey of dealers Oct. 22 found their sales of used cars over the previous 30 days were 11% lower than a year earlier.
“Vehicle sales trends indicate a slowing in used retail sales in October,” Smoke said. “The key concern is the continued increase in interest rates.”