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US auto sales softened at the end of last year as higher financing costs and near-record prices took their toll on would-be buyers.
Pent-up demand that propped up sales in the wake of the pandemic has been sated, and shoppers are now balking at 10% interest rates on car loans and average prices around $48,000. Sales likely slipped to a seasonally adjusted annual rate of about 15.4 million vehicles in the final month of 2023, down from about 15.5 million in the prior two quarters, according to estimates compiled by Bloomberg.
“We’ve seen a big reduction in median- and lower-income households” buying new cars, which now “almost exclusively go to the top 20% of income households,” Jonathan Smoke, chief economist for researcher Cox Automotive, said in an interview.
While 2023 was a marked improvement over an inventory-constrained 2022, the challenges seen at the end of the year are expected to persist. Cox Automotive predicts US auto sales will be up less than 2% in 2024. That means the figure is unlikely to top 17 million anytime soon, as they did for five consecutive years prior to the pandemic.
“The new norm for the industry because of reduced affordability is closer to 16 million,” Smoke said. “We’ve lost about 10% of the buying pool.”
Automakers aren’t motivated to cut prices because they’re making more money selling fewer cars. Consumer spending on new vehicles reached a record $578 billion in 2023, its third consecutive year exceeding a half-trillion dollars, according to researcher J.D. Power. Consumers’ average monthly car payment in December was estimated to be $739, up $9 from a year earlier, J.D. Power said.
“Unless the industry finds a way to get back to more-affordable price points, we will see products that cater to higher income, higher credit-quality consumers,” Smoke said. “And that ultimately limits sales volumes.”
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