Late-model used cars aren’t spared in affordability crisis
The numbers around new-car affordability (or lack thereof) are quite staggering.
According to data from Cox Automotive and Moody’s, to buy a new car in September would have taken 42.2 weeks of median income. That’s up 9% year-over-year, Cox said in a Data Point report, also noting that auto finance interest rates were at their highest levels in 15 years.
And here’s the kicker, particularly for dealers looking to offer late-model used as an alternative: the affordability of 3-year-old pre-owned vehicles has declined twice as much (percentage-wise) in the last three years than that of new cars, according to analysis from iSeeCars.com.
The iSeeCars Car Affordability Index indicated that new cars were 13.3% less affordable in August 2022 than they were in August 2019, as the index fell from 88.86 to 77.07.
However, used cars have seen a 26.7% decline in affordability in the last three years, as their index (for 3-year-old vehicles) declined from 99.13 to 72.66, according to iSeeCars.
The company derives the index scores by comparing median household income to what it considers to be ideal income to finance a vehicle.
“An index value of 100 suggests household income is exactly equal to the idealized income for a car purchase. Values above 100 indicate household income is more than the idealized income and therefore cars are affordable; similarly values below 100 suggest actual income is less than the idealized income, meaning cars are unaffordable,” the company explained in its analysis.
Offering some context behind these numbers, iSeeCars executive analyst Karl Brauer, who will be among the speakers at Used Car Week next month, said in the analysis: “Due to supply chain shortages and increased demand, the rising prices of new and used cars have outpaced income growth.
“From August of 2019, well before the pandemic lockdowns started, to August of 2022, new car prices increased by almost 29 percent, and three-year-old used car prices increased by 52 percent, but incomes increased by only 13%,” he said. “People still need to replace their vehicles, so the resulting drop in affordability means shoppers are either taking longer loan terms and paying higher interest rates, putting down less money for a down payment, or even forgoing the kind of car they originally wanted for a lower cost model in order to make ends meet.”
According to Edmunds, the average amount financed on a used vehicle purchase came in at $31,366 during the third quarter. That’s lower than the year-ago amount ($31,448), but the average term ticked up from 70.8 months to 70.9 months, and the average monthly payment climbed from $555 to $565.
Used-vehicle APR was also up at 9.0%, compared to 8.2% a year ago. Down payments climbed from $3,658 to $3,700.