Rising new vehicle prices are pushing buyers into opting for longer term loans in order to keep their monthly payments down. While new models are better and will last longer, extending the length of a loan may not be the smartest move at a time when technology is changing at a rapid pace. And given the uncertainty of the market, with a flood of used lease cars expected to lower used vehicle prices, buyers could find themselves owing more on their cars than what they are worth.
According third quarter 2016 data compiled by Experian Automotive, new car buyers are paying an average of $495 per month, up from $447 in 2008. While interest rates are lower, 4.69-percent versus 6.14 percent, the run-up in monthly payments demonstrates how much more expensive cars have gotten. The amount financed has grown as well from $24,060 in 2008 to $30,022. Kelley Blue Book estimates that the average transaction price for a new vehicle has topped $35,000, a new record.
Not only are cars more expensive, but loan terms are increasing with nearly a third ranging from 73 to 84 months in length. Just over 40 percent range from 61 to 72 moths, while only 20 percent are in the more traditional range of 49 to 60 months.
Also: Kelley Blue Book Best Buy Awards of 2017
As a buyer, consider all the costs in acquiring a new car. While you may be looking to replace your current car with a similar model, keep in mind that a low or no down payment means you have very little equity in your new car and that actually that money may only be covering the taxes and fees involved in registering the vehicle.
As a result of higher prices, you may have to adjust your expectations on how much car you can really afford—merely pushing out the loan term to lower the monthly payments mean you will be paying more, not only for the car but in interest as well. If you are set on a monthly payment, look at matching the car to your current comfort level rather than upgrading to a more expensive model with a longer loan. Or you may want to even consider shopping for a Certified Pre-Owned vehicle, especially an off-lease model. You may find that you’ll have more car for your money on terms that are much more favorable than a 6 or 7 year loan on a brand new model.
Ford looks to speed sales process
Ford Motor Credit, the auto maker’s finance arm, is trying a pilot program where customers can complete an entire transaction on a dealership’s website, minimizing or perhaps eliminating entirely a visit to the showroom to buy a new car. The only interaction would be signing paperwork with a dealership employee and taking delivery of the vehicle.
Dealerships participating in the program can decide if they want to deliver and complete the transaction at a place of the buyer’s choosing. According to Automotive News, Ford Credit is working with AutoFi, a financial technology company that has developed software to automate online vehicle sales and financing. The pilot program has been launched at Ricart Ford in Groveport, Ohio last month, with more dealerships added to the pilot program over the next few months.
“What makes this so exciting is we know how important and exciting purchasing an automobile can be for a customer, but we know there are a lot of pain points in the process,” Lee Jelenic, Ford Credit’s director of mobility told the trade paper. “By combining our fast and efficient credit-decision process with AutoFi’s online capability, we are making the customer experience faster smoother and simpler.”
Penske gives up on no-haggle pricing
Another dealer pilot program, this one on no-haggle pricing by Penske Automotive Group at its Toyota of Surprise, Arizona, has ended with the dealership going back to a more traditional commission-pay based model. The company cited the fact that the program, which was tried during the last half of 2016, didn’t greatly boost volume or revenues nor did it produce any significant cost savings.
Penske tried the approach at the new store, largely hiring its staff that worked non-automotive retail and emphasized to customers that there would not be any negotiation of the prices listed on the vehicles. The sales staff was on salary rather than commission. The no-haggle model extended to new and used vehicles as well as finance and insurance packages.
“We didn’t see the benefit of lower costs [from] having one person do the whole transaction,” Roger Penske told Automotive News. “I think maybe our execution was poor. We had a brand-new store and a startup from scratch, so there was turnover of people.” Reportedly, the dealership found that it was losing sales to competing stores that would undercut the no-haggle deals.
Also: Class of 2018 – New Cars Ready to Roll
Wal-Mart to sell cars
Joining big-box retailer Costco, Wal-Mart is launching a program to sell cars through 25 Wal-Mart Supercenters in Houston, Dallas, Phoenix and Oklahoma City, according to press reports. The pilot is being launched through online car buying site CarSaver which will have kiosks in the stores allowing buyers to look through the inventories of local dealers, primarily AutoNation stores in all the markets except Oklahoma City. Ally Financial is partnering with the program to provide financing.
For each completed transaction, CarSaver receives a $350 fee from the participating dealer. Costco currently sells about 1,000 vehicles per store per year, Wal-Mart is reportedly looking to do about the same volume, split evenly between new and used cars.
The rundown
Check out the This Week in Car Buying Podcast here.
The 2018 BMW 4 Series range has been updated by the German manufacturer. The new models have a more aggressive look and benefit from mechanical upgrades.
We also had an opportunity to drive BMW’s all new 5 Series sedan. See our First Review of this 2017 model here.
The 2018 Mercedes-Benz E Class Cabriolet will be all new when it is launched here later this year. We were on hand in Arizona for a First Look at this cutting edge drop top.
In the market for a new car? Explore these useful tips on how to get the best deal:
Kelley Blue Book’s Complete Guide to Incentives
All you need to know about leasing
Which dealer services are right for you?
What to look for in your next economy car
