Vehicle shortages continued to impact finance trends in used cars in May, as the average amount financed for used vehicles increased $1,654 compared with April. For new vehicles, the amount financed only went up about $400, on average.
“I think the one for used is really the kicker there because clearly from one month to the next, a huge increase in amount financed,” Edmunds Senior Analyst Ivan Drury told Automotive News. I”don’t think that … number is … going down anytime soon,because there just are so few used vehicles for sale — and new vehicles, the same problem.”
There continues to be a shortage of certain new vehicles because of the chip shortage, causing customers to consider used vehicles. However, demand for new vehicles remains strong, and once supply returns, customers will be willing to pay the higher prices, Drury said.
Edmunds said the average down payment for new vehicles rose $128 in the last month, while used vehicles down payments decreased $28 during that same time period.
“Because of that little supply, we might actually see … the amount financed and monthly payments and our payment for new vehicles begin to trend downward,” Drury said.
Average interest rates remain low, and car buyers have good credit and are continuing to accept offers on the used car end. Used-car interest rates dropped to 7.7 percent in May, from 8.1 percent in April. The average interest rate charged to finance a new vehicle dropped from 4.6 percent to 4.5 percent.
Cox Automotive Chief Economist Jonathan Smoke anticipates another week of used-vehicle price increases before heading back to normal levels. Stimulus checks will no longer have effects on purchases, in addition to tax season concluding. He also soon expects improvements in supply.
“That creates an environment where pricing is likely to be more normal, meaning we actually see vehicles depreciate, but not necessarily such a shift that demand craters and suddenly we have too much supply,” Smoke said. “I don’t think that that’s in the cards either. It’s likely more of, we’ve reached the end of this crazy run up in prices and we now start to see depreciation going forward.”
Staff writer Jackie Charniga contributed to this report.