Automakers need to do some serious navel-thinking about price levels and highs if they want to sell more vehicles.
By wolf richter For wolf street,
To illustrate the data we’re going to look at in a moment, I “built” a 2023 model year F-250 Lariat on Ford’s website: MSRP $104,070. I could make something more expensive in the F-350 lineup. Ford suggested financing it with Ford Credit. With a down payment of $10,407 and a five-year term, at 5% APR, I’d end up with monthly payments of $1,768. Screenshot from Ford’s website:
There’s a wide range of options and trim packages, especially among the trucks. I also “built” the 2023 F-150 Lariat, and it ended up with an MSRP of $90,780. Ford suggests leasing it from Ford Credit for $9,014 down, $1,007 per month over 48 months. Screenshot from Ford’s website:
According to Experian’s Automotive Finance Market Report for loans originated in the third quarter of 2022, the average monthly payment for the F-150 increased to $893 per month in Q3; For the Ram 1500, this rises to $860; For the Chevy Silverado 1500, it rises to $808.
Pickup trucks have long been one of the best-selling new vehicle segments in America. They are a big part of the business. Ford didn’t take EVs seriously until Tesla threatened to make a pickup five years ago. That’s about the time Ford got religion and got into EVs and came out with an electric pickup to defend its core turf, while we’re still seeing Tesla threatening to come out with one. Ford lives and dies by its pickups.
And automakers have upscaled them over the past two decades because upscale is where the money is, and they’ve brought out high-end models and equipment packages that push pickups into the luxury segment, and they’ve raised prices, and They are making huge profits on them.
But other popular vehicles also have big payouts. According to Experiment, these are the average payouts for some models:
For all new vehicles, the average amount financed in the third quarter — after down payments, trade-ins with trade-in values spiking — rose 10.4% from a year earlier to $41,665, according to Experian, up 20% from the third quarter. more 2020 ($34,678).
The average new vehicle loan rate increased to 5.2% in Q3, up from 4.1% in Q3 2021 and 4.2% in Q3 2020.
That’s why the average new vehicle loan payment increased 13% year-over-year to $700 per month. Over the past two years, the average payment has increased by 24% (from $565 in Q3 2020).
Average loan terms for new vehicles increased only slightly from a year earlier after declining in the previous year:
- Q3 2019: 69.0 months
- Q3 2020: 69.6 months
- Q3 2021: 69.5 months
- Q3 2022: 69.7 months.
But there are differences: Buyers with credit ratings of “super prime” averaged the shortest loan terms, while “near prime” and “subprime” averaged the longest terms:
- Super Prime: 64.1 months
- Prime: 71.2 months
- Near prime: 74.7 months
- Subprime: 74.2 months.
increased share of loans with ultra-long loan terms; More interestingly, the share of shorter loan terms also increased as buyers were trying to take advantage of the lower interest rates in that range. But the share of mid-cap, 5-7 year term loans declined:
- Up: 85 months and above: The share of total loan originations increased to 1.8% in Q3 2022, from a share of 1.3% in Q3 2020.
- Up: 73-84 months: Share increased from 28.9% to 34.6% in Q3 2020.
- Down: 61-72 months: Share declined to 36.7%, up from 44.6% in Q3 2020.
- Bottom: 49-60 months: When I was in business, this was about as far as you could go; The share declined from 19.7% to 16.6% in Q3 2020.
- Up: 48 months and under: Interestingly, the share rose from 5.5% to 10.3% in 2020.
Who gave the loan?
Credit unions’ share of all new vehicle loans originated in Q3 2022 (red line) rose to 28.8%, while banks’ share declined to 29.5% (blue), and the share in the automaker’s own finance divisions (“captive finance”) , while still #1, has fallen for the second quarter in a row to 35.3% (gray):
The sky-high cost of new vehicles – and the sky-high payments they still apply at relatively low interest rates – explain why, over the past few years, new vehicle sales volumes in units have been at a dismal low for more than two decades. Case in point: Sales in 2022 are on track to be where sales were in the late 1970s.
The year was marred by supply chain complications. But the sales of Good-Times-2019 were also less than the sales of the year 2000.
If the auto industry wants to sell more vehicles, it needs to do some serious navel-thinking about how to level prices and upscale (the official Wolf Street projections for December sales in 2022 include better than last December) Is:
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