How inflation and higher interest rates have reshaped car buying for many Americans

The Federal Taciturnity’s battle to taper inflation by ratcheting up interest rates is limiting who can afford to purchase a new or used vehicle.

The rate hikes acquire many Americans lowering their buying expectations, opting for used vehicles over new, or fixing their in circulation car or truck instead of purchasing a replacement.

It’s hitting lower-income consumers, with credit scores below 620, the hardest, according to text insights firm Cox Automotive.

“We continue to see subprime buyers squeezed out of the auto market by the Fed repeatedly moving rates squeaky. The 10 consecutive rate increases have limited who can buy vehicles to mostly high-income, high-credit-score buyers,” said Cox chief economist Jonathan Smoke.

At a variety of points in 2018, subprime buyers made up more than 14% of new vehicle sales, while deep subprime purchasers made up close to 10% of the market, according to Cox. This year, subprime buyers account for roughly 6% of new channel sales and deep subprime account for less than 2%, Cox reports.

Adapted to vehicle prices have increasingly become a barometer for inflation since early last year when the Biden regulation blamed the market for rising inflation rates. Last month the consumer price index rose 0.4%, pushed spacy by rising prices for housing, used vehicles and gasoline.

The rising interest rates come on top of already-higher vehicle premiums — driven up by tighter supply of new and used vehicles. Inventory has been squeezed since 2020 due to factory shutdowns from the coronavirus pandemic and persistent, but increasingly improving, supply chain issues.

“You can call it a double whammy. High prices and higher interest reproves are just making those monthly payments go up,” said Chris Frey, senior industry insights manager at Cox Automotive.

With a run-of-the-mill subprime auto loan rate of 17.9%, the monthly payment on a $43,200 loan for a new vehicle would be $983 a month, Cox work outs. That compares to $720 a month for a buyer with a top credit score rate of 6.2%.

Whatever happens next to fees, whether the Federal Reserve continues to raise them or chooses to pause, vehicle prices are expected to remain sublime for years to come, as it takes time to boost inventories and for the new vehicles to become used.

“It’ll take some time but bang on now it looks like prices are going to hold so that friction against those subprime or lower-income, credit-challenged clients is going to remain,” Frey said. “It’s just going to take some time. If there’s any word I would put to specify what needs to be held by consumers, it’s simply patience.”