The market for new and used cars in the United States is becoming increasingly challenging for the average American buyer, with inflation driving price increases and interest rates driving delinquencies.
The average cost of a for-sale vehicle in 2023 far exceeds what most people are willing to pay for it, a troubling sign that persistent inflation and rising interest rates have effectively eroded a large share of the consumer’s purchasing power and personal savings.
Shoppers looking to buy a new or used car in 2023 should anticipate paying significantly higher prices than they would have prior to the COVID-19 pandemic and shutdowns, according to Atlanta-based software company Cox Automotive, per Fox 4 KDFW.
Besides shelling out more money to buy a new vehicle, the average consumer must also commit more time to pay it off. Data from Cox Automotive suggest that the average U.S. consumer needs 44 median weeks of income to pay off a new auto loan, up from between 32 to 33 weeks in 2019.
For those who can afford to buy a new car in 2023, data show that only one model-year vehicle is currently available for under $20,000: the spartan Mitsubishi Mirage hatchback. This is a stark contrast to the dozen or so new models that were priced under $20,000 only five years earlier.
“I just won’t pay that kind of price,” said Karen Schaeppi, a resident of Minneapolis who bought a red Mitsubishi Mirage in July, per Fox 4.
Despite inflation pushing the average cost of a new vehicle to $48,000, it is actually the current interest rate environment in the U.S. that has led to the highest amount of auto loan delinquencies since 2006, The Wall Street Journal reported.
As of August 2023, the average auto loan interest rates across all credit profiles ranged from 5.18% to 14.08% for new cars and between 6.79% and 21.32% for used cars, data from Experian show.
Therefore, the average monthly payment for a new vehicle is around $750 in 2023, an 11.5% increase from the year before. Meanwhile, the average car payment on a used vehicle is about $516, a 2.2% increase from last year, according to Experian’s State of the Automotive Finance Market report.
“Usually you get the default spikes when unemployment spikes—it’s the biggest correlation in consumer credit,” said Clayton Triick, a senior portfolio manager at Angel Oak Capital Advisors, per the WSJ. “To see them go up that much while unemployment is still low is not typical.”
Regardless of current employment levels, further economic tightening in the U.S. could eventually prompt a big boost in sales for the Mirage, especially as consumers become aware of its lower starting price, according to Cox Automotive analyst Michelle Krebs, per Fox 4.
While Krebs sees the Mitsubishi Mirage as a good option for budget-conscious consumers, she says a return of $20,000 or under vehicles is unlikely “unless a Chinese automaker came in and sold cheap. Politically, that doesn’t seem likely,” Fox 4 reported.
The Dallas Express reached out to Scott Anderson, senior director of public relations at Experian, to get the firm’s outlook for the second half of 2023 but did not hear back by the time of publishing.
