Jim Lacamp, Morgan Stanley’s senior vice president of investments, joins “Varney & Co.” to discuss the Federal Reserve’s next move and the growing debate over a possible rate cut in December.
Car prices are on the rise and the average cost of a new car has reached a record level, approaching the $50,000 mark for the first time.
The average transaction price for a new vehicle in October was $49,105, according to Edmunds data. This represents a year-over-year increase of 3.1%.
“It’s something we’ve all been waiting for, I don’t think anyone expected that number to go down,” Ivan Drury, director of analytics at Edmunds, told FOX Business. “That coincided with a high share of electric vehicles being sold, so naturally, with electric vehicles being more expensive, that kind of pushed us over the edge.”
“Aside from all that, there’s virtually no vehicle you can buy today that’s cheaper than last year, two years ago, five years ago,” Drury said. “The average trade-in age for a new car is currently five and a half to six years. People who bought in 2020 and 2019, and especially in 2019 for prices, are definitely up for shock sticker“.
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New car prices are approaching the $50,000 average for the first time, creating challenges for buyers. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
“If you’re a trade-in customer and you haven’t been to the dealership for anything other than service in six years, you’re going to be stunned to see that the average transaction price is almost $10,000 more than the last time you purchased,” Drury added.
Average monthly payments on new vehicles sold in October saw a similar increase of 3.2% from a year ago and stands at $766 per month. Interest rates fell slightly, with the average APR falling from 7% to 6.9% in October.
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New car prices are significantly higher than they were five or six years ago, leaving buyers facing shock when considering trading in a vehicle. (iStock/iStock)
Drury said there was a noticeable downward trend with interest rates on new car loans below 7% for the first time since last December, but noted that car buyers with a six-year-old car were likely looking at around 4% or 5% – meaning a new car loan will be significantly more expensive to finance.
“The average interest paid over the life of a loan today, your average amount to finance is $43,000; a 72-month term is most common; you’re looking at about $9,500 in interest alone – so you’re not even paying for the car at that point, it’s a privilege to borrow,” Drury said.
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Dealers have increased their discounts amid rising sticker prices and high interest rates. (David Paul Morris/Bloomberg via Getty Images)
Car dealers have increased the average discount available to buyers, although these offered some slight relief. The average discount was $1,985 in January, reached its highest level of the year to date at $2,262 in June and was $2,240 in October.
“For the dealers, they use rebates. They get money from the car companies to put money on the hood,” Drury said.
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“The average vehicle stays on the lot for about 60 days, which is considered acceptable by industry standards. But that also touches on time spent on the lot, and dealers don’t want them to be there that long because, while it’s acceptable, the optimum is, of course, lower, the fewer days on the lot the better for them,” he said.
