Just how much pressure American car buyers can bear is going to be a question automotive investors will wrestle with in 2023.
It feels almost impossible that the answer will end up being positive for automotive-related stocks, though the consumer’s resilience up to this point has been something to behold.
The percentage of people paying $1,000-plus a month for their personal transportation hit a record in the first quarter: 16.8% of consumers who financed a new vehicle are paying four-digit figures, according to auto industry data provider Edmunds. That compares with 15.7% in the fourth quarter of 2022 and 10.3% in the first quarter of 2022. In the first quarter of 2021, only 6.1% of new car buyers were paying more than $1,000 a month.
The reasons aren’t hard to identify. Inflation has pushed new car prices to record levels in recent months. And low used car inventories, partly because of low production due to Covid-19 in 2020, have kept used car prices stubbornly high.
New car and used car prices are always related to one another. Buyers will always try to find an optimal deal.
Rising interest rates, of course, are part of the vehicle affordability conundrum. The average annual percentage rate on new cars financed in the first quarter of 2022 was 7%, up from 4.4% in the first quarter of 2021. That’s the highest rate seen by Edmunds since the first quarter of 2008.
And monthly payments are soaring despite higher down payments for vehicles. The average down payment for a new car in the first quarter was just shy of $7,000, a record, up almost $1,000 from a year ago.
Declining vehicle affordability is making investors nervous. Shares of
General Motors
(ticker: GM),
Ford Motor
(F) and
Tesla
(TSLA) are down 25% on average over the past 12 months. The
S&P 500
and
Nasdaq Composite
are down 9% and 12%, respectively, over the same span.
Nervousness extends beyond auto makers. Shares of auto lender
Ally Financial
(ALLY) are down 39% over the past 12 months. Stock in used car dealer
CarMax
(KMX) is off about 36%. And the average stock in the Russell 3000 Auto and Auto Parts Index is down almost 40% over the past 12 months.
Investors are clearly concerned, but more cars are actually leaving dealer lots. Total U.S. car sales are up in 2023 versus 2022.
U.S. car sales are typically expressed as a seasonally adjusted annual rate, or SAAR. The SAAR in 2023 has averaged about 15 million units, up from 14 million in the first quarter of 2022. More cars are being sold while affordability deteriorates.
Higher wages can’t solve the lower affordability-higher sales puzzle. Average wages are up about 4% so far in 2023 compared with the same time last year, according to the Bureau of Labor Statistics. The average car payment is up 11% from one year ago, at about $730 a month compared with $656 in the first quarter of 2021.
Cars are more expensive, financing them is more expensive, and cars are taking up more of the average American’s paycheck.
It feels like something has to give.
At least gasoline price are down about 25 cents a gallon from this time last year. That saves the average driver, perhaps, $10 bucks a month.
Write to Al Root at [email protected]
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