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There are offers again for car buyers, but business is still slow

There are offers again for car buyers, but business is still slow
There are offers again for car buyers, but business is still slow

Steve Asp, a resident of St. Louis Park, was keen to lease a Ford SUV.

But even after his regular dealer offered him thousands of dollars off his preferred model, the monthly payment, including interest, was nearly $200 more than what he was currently paying, so he decided to back out of the deal and look for another model.

Car prices have started to fall, a relief for buyers facing record prices of recent years. Inventories are also increasing as the country overcomes pandemic-related supply chain problems.

Some car dealers are even starting to haggle and offer a few discounts. But while markets are slowly returning to normal, some buyers are still hesitant to make a purchase as higher auto loan rates and unpredictable economic conditions cause them to delay expensive purchases.

“We’re looking at monthly payments of over $700 (on average for new cars), and that’s a scary prospect for a lot of people,” says Joseph Yoon, a consumer insights analyst at car-buying website Edmunds.com.

If possible, many consumers are taking their time buying a car. Some are waiting to see if the Federal Reserve lowers interest rates later this year to lower the cost of a car loan. Others are watching to see who wins the presidential election in November, either because they are worried about long-term economic uncertainty or because they expect inflation relief depending on the election victory.

However, according to economists, other consumers are hesitant because costs have risen sharply in almost all areas of their lives and they are therefore having to cut back on their budgets.

“We’ve seen continued growth in incentives and rebates, and that’s helping affordability, but improving affordability isn’t translating into a significant improvement in sales,” said Jonathan Smoke, chief economist at automotive services and technology provider Cox Automotive, during a midyear assessment of the U.S. auto market in late June. “Part of the problem is higher prices, but the other part is simply that consumers are becoming more price-conscious in many categories.”

Asp, 45, wanted to lease because he likes driving newer cars that still have a warranty. But he decided against it because of financing. His current lease is several months away, so he said he will take his time before making the purchase.

“There is room for negotiations, but I had to wait,” said Asp.

The industry is in a middle ground – more attractive than in recent years, but not good enough to attract a large proportion of people who want a new car but don’t need it.

There is a larger inventory of used and new cars, which was quite a problem during the pandemic when auto factories were shut down and a shortage of microchips brought new vehicle production to a halt. It wasn’t long ago that dealer showrooms were empty, limiting trade-in inventory.

According to Cox Automotive, the weekly available quantity of used cars was higher in the first six months of the year than at the same time in 2023. In fact, new car supply is approaching pre-COVID levels.

In 2021 and 2022, Long’s Auto Place in the eastern metropolis had a difficult time keeping cars in stock, as vehicles were selling within a day or a week at most.

“We sold everything and then had to buy at high prices and sell at high prices,” said co-owner Justin Long, whose family has run the dealership for over 40 years.

Now the vehicles on the Long site, which were moved from Rice Street in St. Paul to Highway 61 and County Road E East, in White Bear Lake last year, it could take an average of 45 days for a property to sell, which is a more normal sales cycle.

“The market has stabilized somewhat compared to the madness of two years ago, and that is benefiting the consumer,” Long said.

As of early July, most of Long’s used cars were priced below $25,000, a price level that had fallen in recent years.

The average transaction price of a new car in May is about $47,300, according to Edmunds, up more than 42% from May 2016. Rebates (excluding refunds) offered by dealers are currently about $1,600, about 25% less. For a used car for which the buyer had a loan with an APR of 11.5%, the average monthly payment is $554.

“I think the sensible people will wait or they will look for a used car that is older than they expected and has more miles than they wanted,” Yoon said.

Kelley Blue Book, a subsidiary of Cox Automotive, forecasts new car sales for the first half of 2024 to increase by nearly 225,000 units, or about 3%, compared to the first half of 2023.

However, given the economic uncertainty for the second half of the year, Cox Automotive forecasts total sales of 15.7 million new vehicles, a modest increase of 1.3% over 2023.

According to a Cox survey, both authorized dealers and independent dealers had less confidence in the strength of the sales market and the economy in the second quarter of this year than they did a year ago. They said the biggest factors slowing business were interest rates, the economy, market conditions, the political climate and costs.

Although Long admits he can’t control the macro environment that could affect his business, he tries to control as much as he can, such as keeping his prices competitive so Long’s appears high in Google searches.

While he doesn’t know how the economy will perform, he points out that waiting to buy a car won’t necessarily lead to lower prices or interest rates.

“Pick your poison,” he said. “I don’t think I’ve ever seen low car prices at low interest rates.”

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