Nearly half of upcoming auto buyers plan to spend less than $30,000 on their next vehicle, according to a Cars.com study offering a glimpse into consumers’ financial mindset going into a car deal.
“The compounding effects of inventory shortages, economic uncertainty and industry challenges have made value one of the most sought-after features in a vehicle,” Cars.com News Editor Jane Ulitskaya said in a statement. “Electric vehicles and new technologies will continue to dominate the media and capture our attention but affordability is the trend that’s propelling today’s car shoppers.”
Cars.com’s January survey of 992 people intending to buy a vehicle in 2023 found 54 percent planned to purchase new vehicles, while 24 percent planned to buy used vehicles. The other 22 percent said their answer depended on vehicle availability. Seventy-six percent of used-car buyers want a vehicle no more than 5 years old.
The listings site also found 26 percent of consumers want to spend less than $20,000, 47 percent want to spend less than $30,000 and 67 percent want to spend less than $40,000.
According to industry data, some of these car buyers might find themselves priced out of the market.
The average new-vehicle price reached a record $49,507 in December and the average used car sold for $27,143, according to Kelley Blue Book. The median new-vehicle price among Cars.com dealers that month was $42,500, Ulitskaya wrote in a recent article.
Cars.com calculated a customer seeking a new full-electric or plug-in hybrid vehicle would pay a median price of $59,670, based on its dealerships’ listings. Small pickups carried a median bill of $43,070 while the median price among small SUVs was $34,195. The median price for small cars was $25,745.
Cars.com said 43 percent of its respondents want to buy an SUV and 29 percent want a sedan.
“A growing preference for larger, costlier vehicles is driving shoppers to lean on a combination of long-term savings, flexible financing terms and the trade-in market to bridge the gap between the right car and the right price,” Ulitskaya said in a statement. “Many who typically purchase new models are taking a fresh look at the used-car marketplace, which is sustaining the demand for trade-in inventory.”
However, Cars.com did find and honor 2023 models in all four vehicle categories that could be had for less than $40,000 while still delivering some features (for example, blind-spot monitoring) its polling revealed to be in demand.
Customers with affordability issues or with a $40,000 budget cap have many good options, according to Ulitskaya.
“They just have to be flexible with potentially the vehicle size and then just shopping around comparing different models,” Ulitskaya told Automotive News.
Fifty-eight percent of the shoppers surveyed told Cars.com they already had to delay their purchase, and many of them did so for financial reasons. Among those who delayed buying a vehicle, 35 percent said the pause stemmed from a need to save more money, 12 percent had lost a job or source of income and 11 percent waited because they had incurred another large expense.
The median American worker made $1,085 a week, or $4,702 per month, in the fourth quarter of 2022, according to the Bureau of Labor Statistics. Cars.com’s study found 67 percent of vehicle buyers planned to save up for between three months and one year before making their purchase. Sixty-one percent of shoppers expected to bring 10 to 25 percent of the final price to the deal, and nearly half planned to put less than $5,000 down.
The average down payment for new vehicles reached a record high of $6,780 in the fourth quarter, while used vehicles reached a record high of $3,921, according to Edmunds. That does not include additional funding generated by a trade-in, and it is unclear if Cars.com’s shoppers factored trade-ins into their own down payment estimates.
Forty-one percent of Cars.com’s respondents planned to incorporate a trade-in into the deal, while another 23 percent hadn’t decided. Trade-ins give consumers “some leverage against these higher new-car prices,” Ulitskaya believes.
Seventy-nine percent of customers knew their credit score, according to Cars.com. However, the study predicted interest rates would still come as a surprise.
“Gone are the days of super low rates,” Cars.com wrote in a news release.
Even borrowers with good credit were “routinely receiving financing offers with double-digit interest rates,” the listings site said, while even super-prime borrowers with credit scores of “800-plus” were “receiving an average interest rate of 8 percent.” Nonprime and subprime borrowers were encountering 20 to 30 percent interest rates even in shorter-term loans, it said.
The average new-vehicle interest rate in the fourth quarter was 6.5 percent, while the average used vehicle carried an annual percentage rate of 10 percent, according to Edmunds.
But Cars.com vice president and CreditIQ general manager Bill Liatsis said such industry averages would be skewed downward by credit unions, which have been offering lower rates than other segments of the market. Customers borrowing from other types of lenders would see rates like what Cars.com reported, according to Liatsis. He said his company’s observations are derived from the annual percentage rates its dealership partner lenders were offering customers using the listings site, a data set that largely excludes credit union financing.
Liatsis also said people credit shopping tend to have lower credit scores, which also could have pushed up the Cars.com results.