Auto incentives are back — but high interest rates weaken deals for buyers

KEY POINTS

  • Incentives are coming back to the auto market, but interest rates remain high.
  • However, car shoppers can still reap the benefits. It will require more research and flexibility.
  • “Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Incentives are coming back to the auto market, but high interest rates are weakening those deals for car shoppers.

“Pre-pandemic, people would see a 0% financing for 60 months and think, ‘no big deal,’ because it was available everywhere,” said Jessica Caldwell, an insights analyst at Edmunds, an auto research site.

In today’s market, consumers are more likely to see it as “free money,” she said, especially as auto loan rates stay high.

The average annual percentage rate for a new car loan was 7.1% in the first quarter of 2024, marking the fifth month in a row of rates more than 7%, according to Edmunds.

The APR for used car loans rose 11.7% in the same period, up one-tenth of a percentage point from the prior quarter.

Despite high borrowing costs, car shoppers can still reap some benefits from reintroduced financing offers and other incentives like discounts and dealer cashBut shoppers must to do more research than in that earlier era to find those deals, experts say. 

“Consumers can find good deals, but you have to go model by model,” said Brian Moody, executive editor at Kelley Blue Book.

Be cautious about longer loan terms

Financing offers depend in part on the loan term. You might get a better interest rate with a short term, but a lower monthly payment with a long term.

While extending the life of the loan can help shrink monthly costs, you risk owing more than what the car is worth, which can create more financial problems later on, experts say.

“The negative equity situation is real,” Edmunds’ Caldwell said.

Shoppers must be realistic about how long they plan to keep the car, Caldwell explained.

If you’re someone who buys a new car every three to four years, you might end up in a situation when you trade in that your vehicle and is worth less than you owe, she said.

The share of new car purchases in that situation — known as a negative-equity trade-in — rose to 23.1% in the first quarter, according to Edmunds. That’s up from 18.3% from a year ago and 14.7% in the first quarter of 2022.

The average amount of negative equity jumped to an all-time high of $6,167 in the first quarter, researchers found.

When you roll that into your new car loan, it increases your payment.

The average monthly payment for new car shoppers who traded in underwater loans was $887 in the first quarter, according to Edmunds. The average APR was 8.1% for a term length of 75.8 months.

When you’re comparing financing options, instead of only focusing on lowering the monthly payment, be sure to figure out the total interest you will be paying, experts say.

“That’s where you have to be cognizant,” Caldwell said. “Longer loan terms will always look more attractive because they’re more affordable, but that’s really only part of the story.”

According to Moody: “The quicker you pay it off, the less interest you’re paying.”

What to do before you go to the auto dealer

1. Search for available incentives: Car shoppers will have to a do lot more shopping and research to find available incentives, Caldwell said.

“There are deals creeping out there,” she said. “There was a point two years ago where there just wasn’t any; no deals to be had.”

Seek out models that are not in high demand, as automakers and dealers “rarely incentivize popular” models, Moody said.

“There might be cash back or low financing on one type of Ford, but on [another] type, there’s nothing,” Moody said. “It makes it more challenging for consumers because you really have to go and do your research.” 

2. Know your credit score: While shoppers might come across 0% financing offers, those deals are often reserved for buyers with excellent credit. Find out what your latest score is to avoid getting stuck into deals you didn’t fully understand, Moody explained.

3. Get pre-qualified for different loans: Shop around for auto loans at different banks or credit unions before going to the dealer, experts say.

That lets you determine what kind of interest rate you’re able to get and compare offers, Moody said.

Don’t limit yourself to comparing the monthly payments. Consider the amount of interest you will be paying over the life of the loan, Caldwell said.

Having these options will also help you negotiate with dealers.

“Always give the dealer the opportunity to beat that deal in terms of interest rate and the loans terms, and oftentimes, they can,” Moody said. “If they can’t, you already have this loan.”

Originally published by CNBC https://www.cnbc.com/2024/05/16/despite-auto-incentives-high-interest-rates-weaken-deals-for-buyers.html?__source=iosappshare%7Ccom.microsoft.Office.Outlook.compose-shareextension

Wholesale Used-Vehicle Prices Declined in April

Wholesale used-vehicle prices (on a mix, mileage, and seasonally adjusted basis) were down in April compared to March. The Manheim Used Vehicle Value Index (MUVVI) fell to 198.4, a decline of 14.0% from a year ago. The seasonal adjustment to the index magnified the results for the month, resulting in a 2.3% month-over-month decrease. The non-adjusted price in April decreased by 0.6% compared to March, moving the unadjusted average price down 11.9% year over year.

Go to coxautoinc.com (April-2024-Manheim-Used-Vehicle-Value-Index-image subpage)

In April, Manheim Market Report (MMR) values saw weekly decreases that were slightly above long-term averages during each week of the month. Over the last four weeks, the Three-Year-Old Index decreased an aggregate of 1.6%, including a decline of 0.5% in the last week of the month. Those same five weeks delivered an average decrease of 1.0% between 2014 and 2019, illustrating that depreciation trends are currently tracking higher than long-term averages for the year.

Over the month of April, daily MMR Retention, which is the average difference in price relative to the current MMR, averaged 98.3%, meaning market prices fell below MMR values and declined against March as well, which was 99.4%. The average daily sales conversion rate dropped to 59.6%, showing that demand declined relative to March, which is seasonally normal for this time of year. For comparison, the daily sales conversion rate averaged 60.4% in April during the last three years.

The major market segments all experienced seasonally adjusted prices that were down year over year in April. Compared to April 2023, luxury was the only segment that lost less than the industry, down just 12.9%, and SUVs were down a little more than the market, falling by 14.6% year over year. The worst-performing segment was compact cars, down 17.6% against last year, followed by midsize cars, off by 16.8%, with pickups down 15.2%. Compared to last month, the pickup segment fell by just 1.3%, less than the market’s decline of 2.3% for the month. Compact cars fell the most against March, declining by 3.9%, luxury was down 3.2%, SUVs decreased by 3.1%, and midsize cars were down 3.0%.

Go to coxautoinc.com (April-2024-MUVVI-sales-distribution-by-market-class subpage)

With the increase in interest in electric vehicle (EV) values versus the non-EV market, we are working on sharing metrics for those segments. Seasonally adjusted EV values for April 2024 were down 17.5%, while non-EVs were down 13.1% year over year. Regarding values against last month, seasonally adjusted EV values declined in line with the market, falling by 2.6% from March 2024, while non-EVs declined 3.0% over the same period.

Retail Used-Vehicle Sales Decreased in April

Assessing retail vehicle sales based on observed changes in units tracked by vAuto, we initially estimate that retail used-vehicle sales in April were down 4% compared to March but higher year over year by 9%. The average retail listing price for a used vehicle was up 2% over the last four weeks.   

Using estimates of retail used days’ supply based on vAuto data, an initial assessment indicates April ended at 45 days’ supply, up two days from 43 days at the end of March but down one day from April 2023 at 46 days.

April’s total new-light-vehicle sales were down 3.3% from last year, and volume was down 9.1% from March. The April sales pace, or seasonally adjusted annual rate (SAAR), came in at 15.7 million, up just 0.4% from last year and up slightly from March’s 15.6 million level. 

Combined sales into large rental, commercial, and government fleets declined 5.6% year over year in April. Including an estimate for fleet deliveries into dealer and manufacturer channels, the remaining retail sales were estimated to be down 1.2% from last year, leading to an estimated retail SAAR of 12.9 million, up 0.2 million from last year’s pace, and up from March’s 12.8 million level. Fleet market share was estimated to be 17.5%, down from last year’s 19.3% share. 

Rental Risk Prices Mixed; Mileage Declines Slowed in April

The average price for rental risk units sold at auction in April declined 12.2% year over year. Rental risk prices increased by just 0.2% compared to March. Average mileage for rental risk units in April (at 58,800 miles) continues to be down compared to a year ago but much less than recent periods, declining by only 1.3% against April 2023. Mileage for units in April was up 12.1% from March.

All Measures of Consumer Confidence Saw Declines in April

The Conference Board Consumer Confidence Index® declined 5.9% in April, as views of both the present situation and the future declined. As a result of the decline, consumer confidence was down 6.5% year over year. Plans to purchase a vehicle in the next six months declined but remained higher year over year. According to the sentiment index from the University of Michigan, consumer sentiment declined 2.8% in April but was up 21.2% year over year. The median consumer expectation for inflation in a year jumped to 3.2%, its highest level since November, and the expectation for five years increased to 3.0%, which was also the highest since November. The consumer’s view of buying conditions for vehicles declined to the lowest level since December as views of both interest rates and prices deteriorated. The daily index of consumer sentiment from Morning Consult was very volatile in April and ended up declining by 1.6% for the month, leaving the index up by 7.3% year over year. Gas prices increased in April. The national average price for unleaded gas from AAA increased 3.6% from the end of March to $3.66 per gallon, which was up 2% year over year.

Link to the full article https://www.coxautoinc.com/market-insights/april-2024-muvvi/

The Advanced News

June 2024
A Message From The ADS Team
We hope you all had a fantastic Memorial Day Weekend and found time to enjoy the sun, lake, pool, or BBQ with friends and family. Equally, we sincerely hope the tragic storms that wreaked havoc across the country over the last couple weeks steered clear of you, your families and your dealerships.
 
This is always an exciting time of year for the ADS team. As the country celebrates the unofficial start to summer, we celebrate the official start to prime selling season for the dealers we are fortunate to work with and support. By all accounts, sales, as a whole, continue to meet or exceed expectations. Although many prognosticators predicted the downfall in F&I performance during the post COVID era, we at ADS, are honored to say our stores are holding pace, and even setting new records in PVR and PPRU. There are many contributing factors to this, but the basis is our incredibly talented team, our unique F&I sales process, and the support and accountability we provide our stores. If you are interested in learning how to improve your F&I process, profitability, reinsurance performance, etc. please contact us to see if we are the fit you are looking for.

Sincerely,
 
Bob and Ryan

IN THE NEWS 

Wholesale Used Vehicle Prices Decline in April
PERSONAL FINANCE
Auto incentives are back — but high interest rates weaken deals for buyers
US Economic Outlook May 2024 
Why Dealer’s Switch from DOWC’s to ARC’s
What Does Gen Z Want in F&I Products?
 
EVENTS WE WILL BE ATTENDING 

NAMAD – https://web.cvent.com/event/edcd733e-ea51-4261-842b-30b68f704934/summary
RVDA – https://www.rvda.org/Convention
F&I Product and Reinsurance Conference – https://www.fandi-conference.com/

 
Good Luck and Good Selling!

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