For New-Car Buyers, an 'Affordability Shift'

More consumers—and not just cash-poor ones—are opting for lower-priced new vehicles
By Newser Editors and Wire Services
Posted Oct 26, 2024 5:25 PM CDT
For New-Car Buyers, an 'Affordability Shift'
Michelle Chumley poses with her new Chevrolet Trax compact SUV on Sept. 26 in West Chester, Ohio.   (AP Photo/Jeff Dean)

Had she wanted to, Michelle Chumley could have afforded a pricey new SUV loaded with options. But when it came time to replace her Chevrolet Blazer SUV, for which she'd paid about $40,000 three years ago, Chumley chose something smaller—and less costly. With her purchase of a Chevy Trax compact SUV in June, Chumley joined a rising number of buyers who've made vehicles in the below-average $20,000-to-$30,000 range the fastest-growing segment of the nation's new-auto market. "I just don't need that big vehicle and to be paying all of that gas money," said Chumley, a 56-year-old nurse who lives near Cincinnati.

Across the industry, auto analysts say, an "affordability shift" is taking root, per the AP. The trend is being led by people who feel they can no longer afford a new vehicle that would cost them roughly today's average selling price of more than $47,000—a jump of more than 20% from the pre-pandemic average. To buy a new car at that price, an average buyer would have to spend $737 a month, if financed at today's average loan rate of 7.1%, for just under six years before the vehicle would be paid off, according to Edmunds.com. For many, that's financially out of reach. Yet there are other buyers who, like Chumley, could manage the financial burden but have decided it just isn't worth the cost. The trend is forcing America's automakers to reassess their sales and production strategies.

"Consumers are becoming more prudent as they face economic uncertainty, still-high interest rates, and vehicle prices that remain elevated," said Kevin Roberts of CarGurus. Per Roberts, through September, new-vehicle sales to individual buyers, excluding sales to rental firms and other commercial fleets, are up 7%. Of that growth, 43% came in the $20,000-to-$30,000 price range—the largest share for that price category in at least four years. How long the preference for lower-priced vehicles may last is unclear. Charlie Chesbrough, chief economist for Cox Automotive, notes the Fed's expected interest-rate cuts should eventually lead to lower auto loan rates, making larger vehicles more affordable. "The trends will probably start to change if these interest rates start coming down," Chesbrough predicted. "We'll see consumers start moving into these larger vehicles." More here.

(More new car stories.)

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