New cars got ever-so-slightly more affordable this year, with more incentives being offered to get inflation-weary buyers off the sideline. While this is good for your average buyer, there’s been a trend towards long loans with $1,000+ monthly payments that hasn’t reversed post-pandemic. In fact, new data shows it’s getting worse.
I feel confident that my Morning Dump proclamation that 2024 was going to be the year of the hybrid was correct, and I see no data to indicate that’ll change in 2024. Early Q4 numbers from Hyundai and Kia show real enthusiasm for cars with both kinds of powerplants.
Rivian is a pure EV company and has no hybrids to lean on, which means it has to convince people to buy its expensive electric vehicles. Supply shortages constrained production, but it looks like a strong end of the year allowed Rivian to squeeze out a sales increase this year (INB4 someone points out that Rivian still loses money on every vehicle).
Rivian wasn’t the only automaker with production issues this year. The entire nation of Italy saw its lowest production since… well, since most of us were born.
Nearly 1-in-5 Shoppers Spent $1,000 Or More On Monthly Payments In Q4
I managed to finance a new car this year and keep the monthly payments roughly similar to what I paid eight years ago. The catch? Because of a more expensive car and higher interest rates, I had to add 12 months of payments. It’s not ideal, and my current plan is to keep my Honda CR-V Hybrid for at least 12 years/120,000 miles.
Data shows that I’m the exception, benefiting both from a good credit score and a trade-in, which I got a good price for when I made my purchase. According to Edmunds, in Q4 a record 18.9% of consumers got a car loan for above $1,000 a month.
Some of this has to do with rates, of course, with Edmunds reporting that just 2.4% of all new vehicles were sold with a loan featuring 0% financing. Some relief appears to be coming with the average APR dropping to 6.8%, down slightly from last quarter.
“Although they tend to skew a bit higher at year-end, the record highs in auto financing amounts that were set in Q4 are the culmination of major challenges to new-vehicle affordability that consumers faced in 2024,” said Jessica Caldwell, Edmunds’ head of insights. “It’s getting more and more difficult for the average shopper to walk into a new-car dealership and leave with a set of keys without feeling like they are forced to create extra room in their budget from some other aspect of life. The one bright spot is that interest rates seem to finally be on a downward trajectory, so buyers are at least getting more car for their buck rather than allocating their payments to interest.”
This reminds me of that video from the one dealership a couple of years back that showed employees there spending upwards of $1,000 a month on new car payments. It was treated as an aberration at the time, and the dealership faced a huge backlash in the media. What’s clear is that it’s not an aberration. While it’s not the average new car loan, it’s more common than it’s ever been.
Not to oversimplify, but it does seem like there are two distinct types of buyers in the market. Many consumers want/need a new car and end up attempting to get a deal. A lot of these people are moving into the compact SUV and subcompact SUV space. Then there are people who want a specific car or truck and are willing to take a huge monthly payment, a longer-term loan, or both.
The average new car loan in the US last quarter was 68.8 months, with a $754 monthly payment at 6.8% APR with $43,113 financed and a down payment of $6,856. Doing a little math and keeping everything the same, that’s more than $1,000 a month for a 48-month loan at the same rate (though, you’d likely get a better interest rate for the shorter term). This is why I say it’s “the new normal,” because the market is continuing to stretch payments.
This isn’t to say there aren’t good deals to be had, but since Trimflation kicked in it’s clear that automakers don’t want to go back to lower pricing unless they have to, and will instead keep ratcheting up incentives. That’s fine if you want a Nissan Rogue, but good deals are going to be harder to find on something like a Range Rover.
As you can see in the graphic above from Cox Automotive, there’s a real split between the popularity of more affordable compacts and more expensive SUVs and trucks when it comes to market share.
What do you do if you want a reasonable car payment? Edmunds has some good advice:
“For longstanding new-car buyers coming back to the market for the first time in years, used purchases and new EV leases are your best bets to keep your monthly payment in line with what you were accustomed to in pre-pandemic times,” said Ivan Drury, Edmunds’ director of insights. “Going down either route presents traditional new-car shoppers with a couple of options: sticking with what you know — buying a used car similar to your current one but with some upgraded features — or embracing the future with an electric vehicle.
Pretty much, yeah.
Kia And Hyundai Set New Records On The Back Of A Lot Of Hybrids
It’s quite amazing how much Kia and Hyundai have grown in the United States, and if there’s any hint for Nissan and Honda on what to do when your country arranges a marriage for you, I guess step one is hiring Jeff Bridges.
My brother-in-law got a hybrid Santa Fe this year to replace his Ford Flex and it rules. I could not argue against the choice in any way, though I was sad to see the Flex go. He was not alone in his purchase, Hyundai reported a record Q4/December/Year, delivering a total of 836,802 vehicles in 2024. The company said it hit new monthly sales records for the Santa Fe HEV (+87%), Tucson HEV (+133%), and IONIQ 5 (+41%). Hybrid vehicle total sales jumped 85%, while total EV sales grew 12%, overall.
Kia came within striking distance of besting Hyundai, with 796,488 units sold in total. The brand didn’t break out hybrid sales, but with similar lineups, my guess is that Kia sold a ton of hybrids.
We’ll have more sales coming in from other automakers this week, so we can see if this trend is isolated to the South Korean automakers.
Rivian Turns It Around, Sort Of
The Rivian R1S and R1T are great vehicles, but like all startup automakers, it’s been a tough transition for Rivian into the new EV paradigm. The company was probably on the way to decent sales and production until an embarrassing mistake led to a supply shortage of critical motor wiring.
Rivian says the issue has been resolved and it’ll get production back, though it’s not clear quite how much production Rivian will need. Last year, the company made 49,476 vehicles, down from the 57,232 vehicles it made in 2023. By comparison, the company did sell 51,579 vehicles, which is slightly up from the 50,122 vehicles it sold in 2023.
In Q3, Rivian lost $39,130 for every truck it built, which is not great. The company has had better news lately, securing a major investment from Volkswagen and a big loan from the Biden Administration.
Rivian stock is up today, so make of that what you will.
Italy Hits A 68-Year-Low For Car Production
Stellantis and Italy aren’t exactly the best of friends right now, though some of that might have to do with the brusque leadership of outgoing exec Carlos Tavares, pictured above.
The country no longer has poor Carlos to kick around anymore, but that doesn’t mean all is suddenly well. Italy’s FIM-CISL union said the company cut manufacturing to just 475,090 vehicles, way down from the 751,384 that were made in Italy in 2023. Overall, production of non-commerical vehicles in Italy was down 46%, to the lowest level since 1956.
FIM-CISL said it would join a protest planned in Brussels by labour organisation IndustriALL Europe on Feb. 5, two weeks before the European Commission presents its “clean industrial deal”.
The union’s leader Ferdinando Uliano said it was important to review EU targets for vehicles’ carbon emissions reduction due to kick in from 2025.
“This is a battle for Europe,” Uliano said, speaking about the crisis facing the European car industry. “Single countries can only lose.”
Don’t worry, Chinese automakers are willing and excited to make up the gap.
What I’m Listening To While Writing TMD
Here’s A Tribe Called Quest on an “Award Tour” with Trugoy the Dove from De La Soul. Never let a statue tell you how nice you are.
The Big Question
What’s the most you would ever pay per month for a new car?
Top image: News 12 Long Island/BMW
Car payments that high are crazy to me. The worst I’ve ever had was $423 or something close to that. But admittedly I don’t buy new. Currently I haven’t had a car payment in 4 years and have no intention of going back to one any time soon. Both my cars are good to go for a while yet and when it’s time to replace one, I think the highest payment I could even consider would be in the $600 realm. I could afford more, but don’t want to.
I pay just about $1000 a month for my 2022 Toyota Camry Hybrid, but that is because I got a 48 month loan. So now it’s more than half paid off already and I was able to lock in a relatively low 2.9% interest rate before they skyrocketed.
If I had waited for new car prices to come down like people were suggesting two and a half years ago, I’d now be facing a new car market where both prices and interest rates are higher than they were back in 2022. Sure $1000 a month is a lot, but my Camry is holding its value well and nothing is cheap anymore. If anything, I’m breaking even on interest since inflation over the last two years has been higher than my 2.9% interest rate. At any rate, I’m keeping my Camry until I drive it into the ground, so I will definitely get my money’s worth out of it. $1000 a month isn’t the end of the world if I pay it for 4 years and then use the car for 20 years. The real people who are screwed are those that lock themselves into a cycle of paying $1000 a month on a Stellantis product only to have to purchase another one almost immediately once their current one shits the bed.
Ultimately, inflation will continue to distort the value of money. 10 years ago I couldn’t imagine spending more than $40k on a new car, and then two years ago buying a nice Camry for over $40k seemed reasonable(ish). In twenty years (or less) people will be talking about how some people are paying more than $2000 a month for a car payment. Such is life.
We bought a 3 year old entry level EV. About 50 percent off MSRP. Payment is about $400. We really dislike payments and have been fortunate to spend our years together with more years w/o payments than with. We always pay them off early. Maybe not this time b/c:
We’re also cash flowing university for our youngest and aggressively paying down our mortgage so we can retire in less than 10 more years (around 60).
We’re still investing and saving. We may lump sum pay off the car like we have in the past. Our other car is a decade old with ~150K miles. Aging gracefully as we rarely drive it choosing the EV more often b/c the EV is so cheap to operate compared to the V6 SUV that needs premium gas. We charge at home most of the time. Occasionally might add 20 percent or so to return home with extra to spare. Not good for the battery degradation to run it to zero often.
Sorry having prices double than go down 10% isn’t affordable. Stop following metrics
Now my brain can’t stop wondering if “head of insights” is a real position at Edmunds.
1k plus insurance and maintenance / fuel is really pushing 1.5k. You should have a big chunk of disposable income and therefore household income to be able to pull this off. This restricts the percentage of population to single digits judging by macroeconomics, but the amount of people carrying these loans around is much higher. This paints a depressing picture- folks squeezed by various loans, mortgages, golf course memberships and assorted bills who still plop a 1k loan on top. It’s the American way a lnd they’re working for the loan originators.
The older I get the less I understand the mentality of wanting a car payment – and even less so for younger people. I’m 50, no kids, my wife and I each have 6 figure incomes.
She’s driving a ’13 Acura TSX Special Edition that she bought 4 years old with 40k on it, has the K24 motor – awesome car. Cash purchase.
When my old car (a 2017 Civic Sport hatchback) was totaled this past year by an inattentive driver, my big upgrade was to a loaded 2017 MINI Clubman JCW with AWD.
Cash purchase.
It’s how you pay off school loans.
It’s how you save to buy a house.
It’s how you save to buy investments.
It’s how you have money to travel.
With no debt (other than a small mortgage), and swept up in the fun excitement of this awesome, immaculate, new-to-me car, the same week I took delivery, I bought and installed a remote starter and an extra set of wheels with new snow tires mounted, and a Rust Kote undercarriage oil treatment, roof rack bars, and a few other items to make it mine – and it didn’t dent the bank account.
On the other hand – I could have technically “afforded” some new whatever – but if I borrowed money, I don’t own it, a bank does – and all the risks that come with that! Not to mention the income reduction that inherently is “subtract this amount monthly to send to this bank you owe” every month.
Who would do that WILLINGLY – especially for amounts that high? Nothing says “I’m poor” like debt!
When 2br apartments are $3000/month, $1000 doesn’t seem so high for a car payment.
Anything over 600$ a month seems bananas to me, and I refuse to have a payment on a car that’s out of warranty.
Anything over $0/month is bananas, really.
It’s culture and society lying to you:
“Wow, nice new car!”
“Oh it’s not mine, a bank owns it. Someday years from now if I reduce my income by hundreds of dollars by paying them every single month between now and then, then I’ll own it. If I don’t, they can take it anytime they want, sell it, and ruin my life forever with a bad credit score.”
It’s at least a little bit bananas that so many people do this.
If you *need* a car in 2024, even used, you are going to be put over a barrel. The vast majority of people cannot afford to pay for a car in cash outright, especially now that used car prices continue to be bananas.
Boring German: my monthly car payment is: zero. Of course pay tax and insurance, but the car itself? Nothing. Because we bought a car that we could actually afford.
We ended up paying $260 a month for 60 months on the car we bought around 2020. It’ll be worth about $5500 this summer when we make the last payment.
Boring French here. Same.
Maybe I’m just getting old and outdated at 48, but $1000 use to be two beater cars, or one Maine beater-with-a-heater with an inspection sticker. Even now, we buy used cars we can actually afford to keep running that don’t require a computer science degree to repair and have parts available at local shops or pick-n-pull yards. New cars are a direct contract to indentured servitude to your loan and employer.
I totally agree. Bonus – beater cars are fun, too!
For decades I had a “nice car”, and a winter beater to slide around in the snow in, and not care if it got dinged up.
And with a second car available, suddenly the main car doesn’t need to be perfectly reliable either.
These days, it’s an 07 convertible fun car with 100k on the clock, and I just replaced my “daily” and year rounder with a 17 AWD Mini Clubman, the hot AWD one, a very nice clean example.
Both cheap, both fun, no loans.