With U.S. House lawmakers set to conduct a hearing on Wednesday to examine the rising costs and potential discrimination happening in auto financing, the April data shared by Edmunds and Kelley Blue Book showed how much more consumers stretched to make a vehicle purchase — especially for new models.
Edmunds reported rising prices and tightened credit conditions continued to place pressure on the new-vehicle market in April. Analysts projected the average price of a new vehicle was expected to climb to $36,718 in April, the highest level seen so far this year.
Edmunds noted April also marked the fourth straight month of the year that interest rates hovered above 6%. According to Edmunds data, the annual percentage rate (APR) on new financed vehicles is expected to average 6.28% in April compared to 5.58% last year and 4.40% five years ago.
“April sales were a bit dampened by the harsh financing conditions we’ve been seeing in the new car market,” Edmunds executive director of industry analysis Jessica Caldwell said in a news release. “Shoppers are really starting to feel the pinch as prices continue to creep up and interest rates loom at post-recession highs.”
The valuation analysts at Kelley Blue Book today reported the estimated average transaction price for a light vehicle in the United States was $36,843 in April. New-vehicle prices increased $732 (up 2%) from April 2018, while rising $93 (up 0.3%) from last month.
“Transaction prices climbed 2% in April, still largely due to the shifting sales mix toward SUVs and crossovers,” Kelley Blue Book analyst Tim Fleming said. “With slowing retail demand and increased competition, SUV prices were up just 1% for the month. However, the shrinking market share of the more affordable car segments, now close to 30 percent, is driving the industry average upward.”
According to Edmunds data, zero percent finance offers continued to be tough to come by in April, constituting only 3.20% of financed transactions in 2019, compared to 7.64% in 2018 and 7.38% five years ago. But Edmunds experts note that this might change heading into the summer holiday sell-down season.
“Slower April sales didn’t do much to eat into the industry’s mounting inventory levels, so we might start to see manufacturers and dealers begin to loosen the reins on incentives closer to Memorial Day weekend in an attempt to rekindle demand,” Caldwell said.
Meanwhile, the Subcommittee on Oversight and Investigations within the House Financial Services Committee conducted a hearing on Wednesday entitled, “Examining Discrimination in the Automobile Loan and Insurance Industries.” Lawmakers lined up testimony from six individuals from consumer advocate organizations, think tanks and universities to discuss auto financing.
Part of what is concerning to lawmakers is Federal Reserve Bank of New York data that showed the rising amount of auto debt consumers are carrying nowadays, surpassing $1.2 trillion with Texas contract holders having the highest average auto debt at more than $6,500 per capita.
The committee memorandum about Wednesday’s hearing said, “The lack of data collection necessary to fully uncover discriminatory practices in the auto finance space presents a barrier to meaningful progress. While auto lenders have faced liability under (the Equal Credit Opportunity Act), Regulation B prohibits them from asking about or documenting borrowers’ race or ethnicity in any financial transaction other than a mortgage. Consequently, advocates have observed that auto financing lacks the transparency and scrutiny provided to mortgage lending even though it is a more common financial transaction.”