The pandemic-distorted economy has delivered yet another curve ball. As many people strayed away from the idea of buying a new car, others bought increasingly expensive rides. In December, the average price of a new car leaped past $40,000 for the first time ever, according to separate reports from both Cox Automotive and Edmunds.
USA Today reports the average amount financed in a new car purchase rose to $35,373 in the fourth quarter of 2020, with the average buyer coughing up a down payment of $4,734. That’s a 5.5 percent and 9.4 percent bump from 2019's numbers from the same quarter.
Researchers say there are a few factors at play. The working class didn’t buy a whole lot of new cars in 2020. However, people who do have the cash to buy new right now are financing expensive cars and loading them up with options.
A lot of it just has to do with cheap money.
You can go out and get a pretty reasonable interest rate but also customers are looking for more equipment on their cars.
More stunning to me is how the market played out in 2020. Charlie Chesbrough, Senior Economist at Cox Automotive, noted that vehicles with prices of $50,000 and over actually gained market share in 2020. Meanwhile, vehicles priced under $30,000 lost ground.
Overall, 14.5 million cars and trucks were sold in the U.S. last year, down from 17 million in 2019. Automakers feared the worst from the pandemic, but the increases in sales of higher margin vehicles like trucks and SUVs were a welcome surprise. The kick appears to have come from people who are affluent enough to weather the pandemic; some of those may have otherwise taken a lavish vacation instead chose to buy an expensive car.
The trend shows no sign of slowing. Research firm IHS Markit reports 50 percent of the new vehicles sold in 2020 in the U.S. were SUVs, and 20 percent were pickups. It expects SUVs to gain another 2 percent this year.
It’ll be interesting to watch how far the SUV, crossover and pickup domination unfolds. I wonder if there will ever again be a time when these vehicles are the minority of new vehicles sold.