It’s no secret that the last few years have been a bumpy ride for automakers in the automotive market. With a shortage of computer chips, factories were forced to shut down, leaving dealerships with limited vehicles to sell. Fast forward to now, and rising interest rates are making auto loans more expensive. Both scenarios have funneled more buyers into used vehicles than new. 

Recent news; however, looks to be signaling a long-awaited rebound! Will these factors alone be enough for a ‘return to normal’? Some believe so. The short story is that we are certainly not doomed to close out the dog days of summers…doggedly. Let’s take a brief look at a few more signs of the times.

NEW CAR SALES ARE UP

Many of our biggest manufacturers have reported substantial sales increases with dealers having more vehicles in stock. Here are some hard numbers::

• Dealers have 44% more vehicles in stock June 2022 to June 2023
• General Motors YoY sales are up 19%, their highest quarterly total in more than 2 years 
• Toyota’s U.S. car and light truck sales rose 7% 
• Stellantis sales are up across their owned brands by 6%
• Honda car and truck sales increased 45%
• Hyundai sales gain 14% 
• Kia sales are up 15%
• Subaru and Mazda are reporting strong inventory and advanced sales

GlobalData reports no signs of stopping a strong economy and improving stock with 15% more light-vehicle deliveries up in July 2023 from low levels last year. 

INTEREST RATES ARE UP

The Federal Reserve seems to be taking a break…for now. After raising the interest rates a whopping 10 times over the previous 15 months, bringing it to its highest point in over a decade. While this move is an attempt to get a grip on inflation, there is currently very little room to breath for consumers already burdened with debt.

This too, doesn’t show signs of slowing down. It seems highly likely that prices will remain elevated and rates may, we’re told, lift 2 more times yet again this year! This makes it even more difficult for people who may be in market for a vehicle to pay down credit card and mortgage payments already weighing on their wallets. Qualifying for a car loan becomes more challenging than it was a year ago, even impossible for lower income buyers.

VEHICLE PRICES ARE UP

Additionally, higher rates and vehicle prices have also put new car purchases out of reach for many. According to Cox data, the average price paid for a new vehicle is topping out at nearly $50k. And despite lessening unemployment rates and higher reported salaries, when you begin to back that $50k into an annual salary, you see the challenge.

For example, Dealer Teamwork Senior Regional Account/Digital Performance Manager, Seth Holdridge, recently followed this thought process in a recent companywide communication:

Here is one perspective on why new sales might be a littler slower in today’s market. I broke down payments on a $37K 2024 Toyota Camry TRD by also figuring in yearly maintenance and insurance costs to find out the annual salary a consumer would need to comfortably afford the vehicle. The following example is on a 60 month term, and while dealers can extend to 72 months or even 84 months, the payment would only change by $50-100 or so….

In running some online calculations across various OEM, dealership, and 3rd party listing websites, my final bill came out to a total of around $37,000 with a 7% tax rate.

DO THE MATH

• It comes out to around $40,000 after playing down 20% which is around $8000.
• Your total loan amount is around $32,000 with a 7% interest over five years, which brings your monthly loan to around $630.
• The average annual maintenance cost of a Toyota Camry is around $400 a year or $32 per month.
• The average monthly insurance cost for a Toyota Camry is around $220 per month.
• This brings your monthly total cost around $900 which would be 10% of your monthly gross income.
• Multiply that  by 12 to get your annual gross income.

So in order to very comfortably afford a brand new 2024 Toyota Camry, you need an annual gross income of around $107,000.

SETH’S TAKE: When looking at our dealers’ inventory, I take notice how many new vehicles are priced under $37,000. Most likely, I won’t find a lot. This is one factor why consumers are still leaning towards pre-owned and CPO.

SETH’S TIP: Refine ‘Why Buy” ad copy, update MPOP® ads to sort by lowest payment, and if not already done, remove any market adjustments on new vehicles.

BROUGHT TO YOU BY…

Insights are shared from our Client Service and Media Experts. Not only are these teams 100% Google Certified, but they also take pride in staying current on market trends and well versed in analyzing the data presented. Combined with the patented MPOP® Analytics, our dealers benefit from superior results-driven digital marketing that comes from the scale and efficiency of a leading SaaS technology company with the strategic insights, proven best practices, and highest levels of customer support found in a world-class marketing agency.

Looking for more Insights from the Inside? Our team is driven by real-world data and innovative solutions. Contact a member of our team to create your winning strategy today! 

*Sources: Automotive News, Cox Automotive Inc, CBT News, NY Times, Wall Street Journal