EDITORIAL: High used prices could rule out autos for many

This article was originally published here: https://www.autonews.com/editorial/high-used-vehicle-prices-could-rule-out-autos-many.

Vehicle pricing continues to rise, and demand is sustained for now. But affordability could really limit the industry’s potential for the generations to come.

Automakers and dealers have benefited from the high transaction prices that come with scarce vehicle supply, but those price tags could have negative effects in the used-vehicle market long term. Especially as remote work becomes more common, inflated prices could teach millions of consumers how to live without a car.

In the second quarter, the average new-car monthly payment rose to $678, up $81 from a year earlier, according to Edmunds. The average payment for a used vehicle increased to $555, up $77 from a year earlier. And some buyers are paying much more than that. In June, 12.7 percent of consumers who financed a new-vehicle purchase agreed to a monthly payment of $1,000 or more, creeping closer to the average mortgage payment in the U.S.

Many customers have been priced out of the new-vehicle market and have purchased used vehicles instead. That contributed to used-vehicle values increasing, pushing traditional used-vehicle buyers out of the market.

Used-vehicle pricing didn’t matter as much a year ago, dealers told us. Demand was robust, and many customers had extra money to spend.

But a shift in demand could be on the horizon.

Used-vehicle buyers are becoming more selective amid recession fears and inflation across industries, and because they simply can’t afford to spend an average of $555 per month.

In the early days of the pandemic, customers were eager to buy vehicles to avoid sharing public transportation. Others needed cars as they moved out of cities and into suburbs.

Today, many workers have the option to work remotely. Some may decide they need fewer vehicles for the household — or that they don’t need any at all. Especially if affordability is a concern, customers will be quick to give up a car they don’t need to use daily.

In many cases, automakers have to increase prices because of inflation and rising commodity costs. But when there’s an opportunity to hold the line or even reduce pricing, automakers should take note in order to sustain a robust and relevant industry for the long term.