Edmunds spots new record in used market, notable jump in average down payments

Finance companies appear to be mitigating some risk amid soaring vehicle prices, asking dealerships to collect more in down payments from consumers before the contract enters a portfolio.

The second-quarter data compiled by Edmunds seems to reinforce that potential scenario, especially within the used market that established a new record in the firm’s database.

Edmunds reported on Thursday that the average down payment for used vehicles financed during Q2 jumped by $684 year-over-year to come in at $3,621.

And for new vehicles, analysts noticed an even greater year-over-year rise, as average down payments in Q2 rose by $1,065 to $4,956.

The down-payment trends surfaced while consumers seeking relief from new-car prices in the used car market becoming a bit dismayed by used-vehicle prices, as well

Edmunds data showed that the average transaction price (ATP) for used vehicles climbed to $25,410 in the second quarter compared to $22,977 in Q1 and $20,942 in Q2 of last year, marking the highest quarterly used ATP Edmunds has on record.

“Tighter inventory and fewer discounts in the new-car market are pushing shoppers to seek a reprieve in the used market, and this consumer behavior is what’s also driving used-car prices to astronomical levels,” Edmunds executive director of insights Jessica Caldwell said in a news release.

“Car shoppers are used to getting deals, and often far below the sticker price for new, so anyone returning to the car market for the first time in a while is in for some serious sticker shock,” Caldwell continued.

While used-vehicle prices are soaring to new levels, Edmunds data revealed that new-model prices appear to be leveling off.

Edmunds indicated the ATP for new vehicles hit $40,827 in Q2, compared to $40,070 in Q1 and $38,895 in Q2 2020. Analysts noted that this development is due to a shift in the mix of vehicles available in the new market

Edmunds data showed that the share of pickup trucks dropped to 17.1% in Q2 compared to 22% in Q2 of last year. Meanwhile, analysts found that the share of SUVs and passenger cars increased. SUVs made up 54.6% of the market in Q2 of this year compared to 51.3% in Q2 of last year, and passenger vehicles made up 23.8% of the market in Q2 2021 compared to 23% in Q2 2020.

“Pricey, optioned-out pickup trucks have been the darling of consumers and the primary culprit in boosting the industry average transaction price during the pandemic, but the well of inventory has finally run dry,” Caldwell said.

“Consumers who can be more flexible are buying more passenger cars and SUVs, and although they’re paying inflated prices for these vehicles, comparatively they command much less than their truck counterparts,” she continued. “Other shoppers are forced to sit out of the market until what they want comes back in stock.”

As opposed to consumers with soft credit or limited financial resources that subprime auto finance companies often serve, Edmunds analysts noted that many shoppers who are still making vehicle purchases in the current market likely represent a more affluent portion of the population.

“This is not a buying environment for people on the fringe of being able to afford new-car ownership,” Caldwell said. “Average loan terms are already quite long and interest rates are relatively low on average, so the consumer really has to make up the difference in price.”

Edmunds experts advised consumers who are considering making a purchase over the Fourth of July weekend or later this summer to make a concerted effort to shop around their trade-in.

According to Edmunds data, the average trade-in value for used vehicles climbed to $21,224 in June, marking a 75.6% increase compared to June of 2020.

“In these unique market conditions, car shoppers must remember that they have the most negotiating power through their current vehicle,” Edmunds senior manager of insights Ivan Drury said in the news release.

“Although it’s important to do your research on available incentives, getting competitive quotes for your trade-in will be the smartest way to guarantee the biggest discount on your next vehicle,” Drury added.

Quarterly New-Car Finance Data

(Averages)

Quarterly Used-Car Finance Data

(Averages)

Source: Edmunds.