This Week in Car Buying: Prices up for January, but moderation seen; Subaru 0-percent financing; Interest rates rise; Stretching used car payments
While the average transaction price (ATP) for light vehicles hit $36,270 in January, a whopping $1,360 or 3.9-percent gain over a year earlier, the ATP declined from December’s record, dropping $486 or 1.3 percent month over month. Rising incentive spending by manufacturers likely contributed to this slight slide in average prices.
"January was a strong month for transaction prices, rising nearly 4 percent on average," said Tim Fleming, analyst for Kelley Blue Book. "The shifting sales mix to trucks and SUVs has been particularly extreme lately, and as volume shifts away from cars, the average vehicle price ticks up. However, there was a glimmer of hope in the midsize car segment, where prices rose 3 percent in January, thanks to the newest generations of the Toyota Camry and Honda Accord. These well-received new models, along with the redesign of the Nissan Altima due later this year, will test how much demand still exists for sedans."
While American Honda and Volkswagen Group continue to strengthen their average transaction values, other noteworthy manufacturers include General Motors and Fiat Chrysler. General Motors was up 4 percent year-over-year, with GMC showing the most improvement. GMC's average climbed 7 percent, with the redesigned Terrain as its best performer, up 6 percent. Buick also had a good month, up 5 percent, as the redesigned Enclave rose 9 percent.
Fiat Chrysler's average jumped nearly 4 percent in January 2018 on a strong mix of Ram trucks and Jeep SUVs. The new Jeep Compass had the best month for Fiat Chrysler, rising 5 percent, although the Wrangler, which is due for a redesign early in 2018, was down 1 percent. Dodge rose an impressive 8 percent, an average that was helped by the discontinuation of the entry level Dart sedan.
By segment, minivans and luxury cars had the biggest gains in average price. Continued strong sales of both the Chrysler Pacific and Honda Odyssey helped family movers post a 7.9-percent increase in transaction prices, while the luxury segment grew by 3.6 percent. Close behind were hybrids and alternative energy vehicles with a 3.4 percent increase. High performance cars, on the other hand, saw transaction prices drop by nearly 10 percent.
Subaru 0-percent financing
Subaru, which has been setting sales records, typically runs tight inventories and keeps a close rein on incentives. However, through the rest of February it is offering 0-percent financing for 63 months on select models along with a couple of enticing fleet deals.
The 0-percent deal for 63 months is being extended on 2017/18 Legacy models, 2017/18 Outbacks and 2017 Foresters. On the 2018 Legacy, there’s also a $185 per month lease for three years with $2,595 down. The 2018 Outback is being offered on a 3-year lease deal for $239 per month with $1,739 down, while the 2018 Forester can be leased for 36 months at just $219 with $1,719 down.
Interest rates climb
A strengthening economy is signaling that it’s time for the Federal Reserve to raise borrowing rates in an effort to head off future inflation. As a result, interest rates on car loans have been climbing since late last year, a trend that is expected to extend throughout the 2018 calendar year.
According to Bankrate.com, the average 60-month new car loan is averaging 4.51 percent interest, a two-basis point increase over rates being offered at the end of November. Shorter 48-month loans are slightly cheaper, averaging 4.44 percent, again, two basis points higher than two months ago. On the used car side of the ledger, rates are closing in on the 5 percent level, averaging 4.97 percent on 3-year loans. That’s up from an average of 4.78 percent at the end of November.
Stretching used car payments
It’s no secret that new car buyers are extending loan terms to keep monthly payments down, a reflection of the rising prices. But stretching to make payments is something that also extends to used vehicle buyers and as would be expected, those buying higher priced used luxury vehicles tend not to be as extended as those seeking to buy more modest rides.
In a study conducted by LendingTree, the nation’s leading online loan marketplace says buyers of Buicks and Chryslers tend to spend a greater percentage of their income on these modestly priced vehicles than do buyers of more upscale offerings. On average, this group’s monthly payment represents almost 11 percent of their annual income. On the other end of the spectrum, buyers of used 2017 Tesla Model S sedans spend about $54,234 on average, which works out to a monthly payment of $818. That figure represents just 4.6 percent of their reported annual income.
Among non-luxury brands, LendingTree has found that buyers of Mini and Subaru models can best afford their cars. Mini owners spend the least of their monthly income on car payments (outside of the luxury segment) with just 5.7 percent going to loan or lease bills. Part of that low rate is also related to the average cost of a used Mini, which in this survey, was bought for $17,728. Used Subaru buyers pay an average of $19,219 and devote just 7.2 percent of their monthly income towards payments of $361. LendingTree estimates that the average used vehicle buyer commits about 8.9 percent of their monthly income towards car payments.
“For most Americans, price and monthly payment are still significant deciding factors, as they are often searching for a vehicle to fit within a certain budget,” said Mike Ouyang of LendingTree’s auto division. “Used cars offer a huge price advantage, are great for those who are less picky about having the most current features. But used cars often have fewer dealer incentives, such as low financing, to capture buyers. This means you could also save big by shopping around for financing first.”
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