By on June 3, 2015

Roth Chevrolet Circa June 2013

As loan terms continue to stretch further into the future, spending on new-car purchases hit a new all-time high in May 2015.

Consumers spent a record $52 billion on their vehicles of choice, The Detroit Bureau reports, with help from a decline in incentives compared to the same time in 2014. The average transaction price climbed 4 percent in May 2015, as well, coming to $32,452 on a new vehicle.

Meanwhile, premium brands saw the biggest boost over the first four months of this year, with sales climbing 10.8 percent over last year; mainstream brands saw only a 4.8-percent gain in comparison.

The all-time high came from a two-pronged collaboration of incentive reduction — only General Motors, Hyundai, Kia and a few others kept their incentives — and an ongoing surge in truck, SUV and large sedan sales, the latter the result of falling fuel prices.

As for how consumers are paying for their increasingly expensive purchases, most are signing loan contracts with terms averaging 67 months. This allows consumers to pay for their new ride without breaking the bank, but also locks them into their chosen vehicle for a good while, lest they find themselves underwater come trade-in time. The latter point also suggests a potential slowdown in sales down the road.

[Photo credit: Greg Gjerdingen/Flickr/CC BY 2.0]

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18 Comments on “US Spending On New-Car Purchases Hit All-Time High In May 2015...”


  • avatar
    thornmark

    Many buying vehicles they really can’t afford, especially trucks and SUVs, with extended term loans.

    Such buyers with 6-8 year loans will find themselves upside down.

    Bad for market LT, moving demand forward w/ “easy” terms for questionable buyers.

    “While longer term loans are growing, they do not necessarily represent an ominous sign for the market,” said Melinda Zabritski, Experian’s senior director of automotive finance.”

    Right, I think we’ve seen that show before.

    • 0 avatar
      elimgarak

      While I agree with the general sentiment you espouse, with cars it is a more liquid market than housing and the repo market is much more robust. That allows for more risks to be taken relatively speaking without it crashing the system.

    • 0 avatar
      TheyBeRollin

      Car loans have never caused a meltdown like subprime housing loans and “easy” terms are not given to questionable buyers. Those headline rates and terms they often advertise only go to people with extremely good credit. We’re talking top ten percent or less. Most people get far higher interest rates than those advertised, especially with long loan terms.

      When sales of new cars are shooting up like this (even I bought one this year, for this very reason), after years with similar loans available, it means something is out of balance in the overall market. In my experience and opinion, it’s a severe drought of decent-condition and lower-mileage used cars at reasonable prices.

      Looking at it from my perspective, if prices hold up as they have, I’ll probably spend less than $2k/year for my car while under warranty and sell it at ~60k miles for more than half what I paid for it. For something that is pretty much guaranteed to get me to work every day, it’s hard to get much below that in price, unless you have the skills, tools, a second car, and don’t value your time.

      • 0 avatar
        dal20402

        I think you are on to something about used car prices in the last few years (really, since “late-model” began to mean vehicles from the financial crash period). I bought a new Subaru in 2013 because, including incentives and financing savings, it was cheaper to buy new than to buy late-model used. That’s all kinds of wrong, but it was true.

  • avatar
    seth1065

    67 months is crazy long, I am counting the months till my 48 month loan is done , what are these folks gonna do when their car needs a major service or new tires, I guess I could see the type who keep a car for ten years going with the longer rate or if it 0% percent interest or close enough, but I doubt that is most of the buyers.

    • 0 avatar
      bball40dtw

      Both of my vehicles are at 72 month loans because one was 1.9% and the other was 0.9%. Almost free money. We have an account with money for tires, service, etc. Next year I should be able to pay off one of the vehicles, but I’d rather keep my cash. I don’t think most people do this though.

    • 0 avatar
      thornmark

      >>67 months is crazy long<<

      And that's just the average. Many of those ever longer LT loans will leave the buyer upside down and w/ any gas spike that will merely occur sooner and more acutely.

      • 0 avatar
        bball40dtw

        I wait patiently for this gas spike. My wife now drives around 7000-8000 miles a year. I am now afraid of the cost of gas for a full size SUV. I will be there when the prices drop.

        • 0 avatar
          SunnyvaleCA

          Yep. My brother-in-law is also waiting for a gas spike. He needs to replace his rusty 18-year-old full sized SUV that he only drives about 5k/year when it snows or when lugging items too large to fit in his Cayman.

        • 0 avatar
          28-Cars-Later

          Barring a significant geopolitical event, you won’t see one through Jan 2017 and probably not one after either. What you will see is a steep increase in fuel taxes in any state whose budget was been eviscerated by ACA.

    • 0 avatar
      TheyBeRollin

      My loan was apparently below-average at 60 months, but I got it at 0%, plus it came with an incentive equal to paying cash, so they’re technically paying me to take their loan. It frees up that money so I can invest it, further reducing the price of the vehicle.

      The vast majority of buyers do not get rates this low, though.

    • 0 avatar
      dal20402

      Yep. I, too, took out a 72-month 0% loan on one car and a 60-month 0% loan on the other. The 72-month loan wasn’t really “free money,” but the savings were much greater than the small incentive that was offered as an alternative. The 60-month 0% loan really was free money.

      I paid off the 72-month loan about a year early to get DTI down to make qualifying for a mortgage a bit easier. I’m a bit more than halfway through the 60-month loan and have no intention of paying it early.

  • avatar
    dusterdude

    Maybe we have an idea what the next sub-prime crisis will be ? — subprime crisis reached its peak in 2008 — maybe cars (and education)will reach there peak (crisis point) in 2016 or 2017 ?

    • 0 avatar
      TheyBeRollin

      I’d bet on education having a meltdown well before cars since the debt there is rising much faster and has no tangible value. You can repo a car but you can’t repo an education. Education loans have risen to nosebleed heights and the lenders do not take into account future earning potential or job prospects in a given field, so the risks are much higher and recourse is far more difficult.

  • avatar
    musicalmcs8706

    That dealership is in my town! They have now changed ownership, and they tore down the building with the sloped roof for better use of their space. Having inherited my car from my grandma, I have never had a car payment. I’m not looking forward to that day as I still have student loan payments…

  • avatar
    elimgarak

    The longest car note I had was 36 months, which I paid off early. I’m 7.5 years into owning the car and feel like i’m only 50% through with it.

  • avatar

    I took 36 month loan on my 30K Fusion Titanium purchase last year. But I paid off loan after three month and own vehicle. The main reason I took loan was to get $500 discount, they told me that have to keep loan at least for few month. So people taking long term loans does not mean that they will wait until the end of loan, they may pay back within months.

  • avatar
    Joss

    I paid off a loan early within few months car in TC not my fault. Bought extented warranty too.

    Never again you can get unlucky and it evaporates.

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