Fueled by affordable financing rates and attractive incentive packages, Americans have been in a car-buying mood for much of the past few years. There was a record number of auto sales in 2015, totaling north of 17 million. The swift pace of purchase activity has continued this year, and as a result, transaction prices have climbed, according to the latest numbers released from vehicle valuation firm Kelley Blue Book.
In July, new-car prices climbed 2.5%, KBB.com reported. Up $82 from May and by more than $830 on a year-over-year basis, the average new car now costs approximately $34,264.
New-car prices up for almost all automakers in July
Occasionally, prices for domestic nameplates will all trend in the same general direction compared with foreign models. That wasn't the case in July, besides the fact that virtually every manufacturer's suggested retail price rose from last year. For instance, models made by Fiat Chrysler averaged 4% more this past July than in 2015, KBB.com reported. The same was true for Ford Motor Co., with prices up 2.2% from 12 months prior. Volkswagen, Subaru, and Toyota all registered price gains of 2% or less, the exception being Nissan, with prices down 0.6%.
Tim Fleming, Kelley Blue Book Analyst, indicated that most buyers are entering the market firm in the knowledge that they'll be able to finance without paying exorbitant amounts in interest.
"Low interest rates, longer loan terms and increased leasing are helping consumers afford their monthly payments, which would be upwards of $550 per month on a traditional 60-month term," Fleming explained. "As the price gap to late-model used cars increases, more shoppers may turn to the pre-owned market for their next vehicle, which could mark a big departure from the new-car sales growth the industry has seen during the past five years."
Buyers taking longer to pay off new-car loans
Consumers who finance have choices for how long they'd like to pay off their car loans. Most people choose five years, or 60 months. Last year, though, the average term rose to 67 months, according to credit agency TransUnion. Specifically, between July 1 and the Sept. 31, roughly 70% of all loans were for longer than five years, up from 50% in 2010.
Longer loan terms enable consumers to stretch their paychecks further by spending less per month, the caveat being that they could spend more in the long run because of interest rates. In the third quarter, the average new auto loan payment fell to $398 from $420 in the same three-month stretch during 2010, according to TransUnion's analysis.
Proof positive of Americans' appetite for car buying are registrations. Between Jan. 1 and March 31, new-vehicle registrations rose 7.5% on a year-over-year basis, according to a recent report from credit agency Experian. Since 2009, when the auto industry had to be bailed out by the U.S. government due to severe profit losses, new-vehicle registrations are up by 87%.