There are more new cars for sale but affordability continues to decline

Photo (c) FG Trade - Getty Images

The average car payment rate in the first quarter was 7%

You may have noticed there are now more cars and trucks on the lots at auto dealerships. There are two reasons for that: supply chains have improved but consumers aren’t rushing out to buy a new car.

A new report from automotive publisher Edmunds might explain why. The average annual percentage rate (APR) on new financed vehicles in the first quarter climbed to 7%, compared to 4.4% in the first quarter of 2022.

Edmunds, which tracks such things, says that’s the highest average interest rate on new cars since the first quarter of 2008. After rising for 14 straight months, the rate stabilized at 7% last month, which Edmunds attributes to more automakers offering low-interest incentives. That’s something carmakers haven’t had to do much since before the pandemic.

Monthly payments hit a new high

With higher interest rates so far this year, monthly car payments are also rising. The average monthly payment for new vehicles hit a record high of $730 in the first quarter, compared to $656 in the first quarter of 2022.

Some car owners are paying a lot more than that. Edmunds reports that 16.8% of consumers who financed a new vehicle in the first three months of 2023 committed to a monthly payment of $1,000 or more — a new all-time high. The average down payment for a new vehicle climbed to a record high of $6,956 in the first quarter, nearly $900 more than a year earlier.

"Since inventory levels are improving, interest rates are now topping the list of the greatest obstacles that automakers will be facing in 2023 to move metal," said Jessica Caldwell, Edmunds' executive director of insights. "But with major challenges come great opportunities.”

For example, Caldwell thinks manufacturers and dealers will have to offer buyers more special incentives on interest rates – something consumers should look for.

Tapping into pent-up demand

“This could be a powerful marketing tool that would enable sellers to tap into the significant pent-up demand that has been building over the past few years and convert that demand into actual sales," she said.

But at the same time, new car prices are still rising. The average price of a new vehicle rose 0.4% in March while used car prices continued to fall. Rising prices and still-high interest rates are prompting many new car buyers to extend the term of their loans.

According to Edmunds, two-thirds of buyers in the first quarter took out loans with terms of between 67 and 84 months.

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