Undaunted by Record-Setting Interest Rate Hikes, Surprisingly Resilient Car Market Demand Defies Expectations
While used car prices overall have dropped by almost 4% from this year’s peak, multiple interest rate hikes have erased any savings passed onto buyers in real terms
Chicago, IL – November 1, 2022 – In the face of the Federal Reserve’s unprecedented interest rate hike campaign, consumer demand in the car market has remained remarkably strong, according to new data and analysis from leading car shopping app CoPilot. Despite added borrowing costs making vehicle purchases more expensive for most buyers, sales actually increased month-over-month in October, particularly for newer, more expensive used cars, which saw a 5% jump in sales. Even though nominal used car prices have finally fallen from their peak levels, rising interest rates have wiped out any savings for consumers, leaving the average cost of buying a used car unchanged in interest rate adjusted terms.
“The continued strength of the car market highlights the challenge the Fed faces in trying to break the back of inflation,” said CoPilot CEO and Founder Pat Ryan. “Despite interest rate hikes increasing the costs of buying cars for most consumers, new and used car sales actually trended upward in October versus September, reversing the typical seasonal decline. With strong consumer confidence, especially around durable goods purchases, car buying remains strong in the near term, especially for new and 1-3 year old used vehicles. Continued interest rate increases will eventually bring much bigger drops in used car prices, but to date, the strength of the American consumer and their willingness to make big-ticket purchases have proven largely impervious to the Fed’s efforts.”
The average used car listing price was $33,505 in March 2022, translating to a typical monthly loan payment of $546
1. Following multiple interest rate hikes since then, the average used car loan rate has risen by 120 basis points by October
1, so the same car today would now have a monthly payment of $564, 3.3% higher, and will cost $1,300 more over the life of the loan. Meanwhile the average used car price has dropped 3.7%, to $32,272 during the same timeframe, but this price drop only just offsets the higher APR. So, even though nominal prices have fallen in recent months, used cars are no more affordable for the average buyer with a car loan.
Large Drops in Wholesale Prices Aren’t Carrying Over to Retail Prices
While wholesale prices for used cars have declined by more than 15%
2 since the start of the year, continued strong consumer demand has limited retail price declines at dealerships, where the average used car price has fallen by just 3.7% from the March peak. Ultimately, this disconnect has resulted in retail prices not falling significantly enough to overcome the impact of multiple interest rate hikes.
New cars and newer (1-3 year old) used cars have continued to see the strongest demand, while older used cars, which have been dropping in price for longer and have seen larger price declines, are seeing softer retail demand. This demonstrates the fact that the car market’s strength is in large part being driven by higher-price point consumers, who typically have greater levels of savings and income coming out of the pandemic.
“Despite dramatic decreases in wholesale prices, used cars are no more affordable on average now than when the market was at peak pricing levels,” Ryan added. “Interest rate hikes have eliminated any positive impact resulting from used car prices finally falling off their record highs. Because older used cars have declined in price fastest, most consumers buying new and 1-3 year old used cars will find that their trade-in has dropped in value far more than the car they are buying. And given that used car prices still have a long way to fall in nominal terms, our best advice – whether you’re taking out a loan, trading in, or buying with cash – is to continue to hold off on buying a used car if you can. The Fed will eventually win this battle, and when they do, car prices will finally drop in a meaningful way.”
CoPilot is a leading, data-driven car buying app that provides consumers with an expert partner for the high-consideration purchase process starting with car buying and ownership. The platform combines powerful data backed by human expertise to introduce transparency to the shopping, purchasing and ownership journey. The mobile application takes the time, frustration, and guesswork out of the process, empowering people to easily navigate the risks of shopping for high-value items, and to buy with confidence at the right price and the right time.
CoPilot provides free pricing tools for consumers. Price Pulse makes it easy for car shoppers to check the current market value and Price Premium for any car, track price changes, and compare years and models to choose the right car and know when to buy. For car owners and sellers, Price Pulse calculates the real-time value of their car, using the same data only dealers used to have, allowing consumers to track how much their vehicle has appreciated, so they can decide whether and when to sell, or negotiate the best deal at trade-in or lease-end. For media publishers, CoPilot offers embeddable data tools, allowing journalists and bloggers to integrate interactive charts within their web content, apps, or newsletters, powered by CoPilot’s unique data and analytics.
1 Monthly loan payments based a typical six-year loan, with an average used car loan APR of 9.14% in March 2022, rising to 10.33% by October, with a 10% down payment. Sources: Edmunds.com, Experian
2 Source: Manheim
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