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Today’s Auto Shopper and the Affordability Question

Posted by Ashley Karr on February 9, 2017

We saw considerable strength in the auto market in 2016. Helped by record-breaking new-car sales, the OEMs generated billions of dollars in profit.

Yet these impressive figures mask the reality of auto retail at the dawn of 2017. Not only did new-vehicle incentives grow as 2016 wore on, but shoppers bought more certified pre-owned vehicles – and used vehicles – than ever before.

Doesn’t this suggest that the overall market is healthy? Yes – people do feel more confident in their financial health than was the case two or three years ago. Median incomes rose sharply in 2015, especially for people at the middle and bottom rungs of the income ladder.

But the average household still earns less than at the tail end of the 20th century. And vehicle prices have risen steadily since then: According to Experian, the average new-vehicle loan was worth $30,022 in Q3 2016 – more than half the national median income.

With new vehicles as expensive as they are, relative to income, today’s auto shopper is taking a close look at affordability. In many cases, people are taking out longer-term loans to buy new. The median loan term in Q3 was 68 months, Experian data shows. That’s as long as it’s ever been.

In addition, more shoppers are turning to the used vehicle market in a bid to maximize value. Sales of used vehicles are believed to have hit an all-time high of more than 41 million – and shoppers are spending more on used cars than ever before. Used-vehicle loan amounts reached a record high of over $19,000 in Q3 2016, according to Experian.

We see two major takeaways from these trends. The first is that shoppers are extremely concerned with getting a great deal. You should price your vehicles in line with your market to stay competitive, and highlight your fair pricing with the help of third-party pricing tools.

The second takeaway is that providing shoppers with options can give you a durable competitive advantage. Consumers are buying vehicles – but only those, like light trucks, that meet their needs.

That means if you build your inventory to align with what shoppers want, you’ll be poised for a strong 2017.

Topics: car buyers, pricing, research