$1,768 a month, with a $10,407 discount, 5% APR, on a Ford pickup? Update on new vehicle financing in the 3rd quarter

Automakers need to think seriously about price levels and upgrading if they want to sell more vehicles.

By Wolf Richter for WOLF STREET.

To illustrate the specs we’re about to look at, I “built” a 2023 model year F-250 Lariat on the Ford website: MSRP $104,070. I could build something more expensive in the F-350 range. Ford proposed financing it with Ford Credit. With a down payment of $10,407 and a term of five years at an APR of 5%, I would end up paying $1,768 a month. Screenshot from Ford’s website:

There is a large selection of options and equipment packages, especially for trucks. I also “built” a 2023 F-150 Lariat and it ended up with an MSRP of $90,780. Ford proposed leasing it from Ford Credit at a discount of $9,014 over 48 months for $1,007 per month. Screenshot from Ford’s website:

According to Experian’s “State of the Automotive Finance Market” report for loans originated in Q3 2022, the average monthly payment for the F-150 increased to $893 per month in Q3; for the Ram 1500 it rose to $860; for the Chevy Silverado 1500, it rose to $808.

Pickup trucks have long been one of the top-selling new vehicle segments in the United States. They’re a big part of the business. Ford didn’t take electric vehicles seriously until Tesla threatened to build a pickup truck five years ago. That’s when Ford got religion and dived into electric vehicles and came out with an electric pickup to defend its core territory while we’re still listening to Tesla threaten to release one. Ford lives and dies by his pickup trucks.

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And automakers for the last two decades have been pushing them upscale because upscale is the money, and they’ve been putting out high-end models and trim levels that are pushing pickups into the luxury segment, and they’ve priced them in skyrocketed and they make huge profit margins on them.

But other popular vehicles also have big payments. According to Experian, these are the average payments for some models:

For all new vehicles, the average funded amount in Q3 — after down payments, trade-ins with increasing trade-in values, etc. — increased 10.4% year over year to $41,665, according to Experian, a 20% increase from Q3 2020 ($34,678 $).

The average loan rate for new cars increased to 5.2% in the third quarter from 4.1% in the third quarter of 2021 and from 4.2% in the third quarter of 2020.

For example, the average new-car loan payment rose 13% year over year to $700 a month. Over the past two years, the average payment has increased by 24% (from $565 in Q3 2020).

The average loan conditions for new cars have increased slightly compared to the previous year after having decreased in the previous year:

  • Q3 2019: 69.0 months
  • Q3 2020: 69.6 months
  • Q3 2021: 69.5 months
  • Q3 2022: 69.7 months.

But there are differences: buyers with a credit rating of “Super Prime” had the shortest loan terms on average, while “Near Prime” and “Subprime” had the longest terms on average:

  • Super Prime: 64.1 months
  • Prime: 71.2 months
  • Near Prime: 74.7 months
  • Subprime: 74.2 months.
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The proportion of loans with ultra-long credit periods grew; and interestingly, as buyers sought to take advantage of lower interest rates in this area, the proportion of short-term loans may have grown as well. However, the share of the middle range, loans with maturities of 5-7 years, declined:

  • Up: 85 months and over: Share increased to 1.8% of total lending in Q3 2022, up from 1.3% in Q3 2020.
  • Increase: 73-84 months: share increased to 34.6%, compared to 28.9% in Q3 2020.
  • Decline: 61-72 months: Proportion decreased to 36.7% from 44.6% in Q3 2020.
  • Down: 49-60 months: Back when I was in business, this is the longest you could go; The share fell to 16.6% from 19.7% in the third quarter of 2020.
  • Up: 48 months and shorter: Interestingly, the stock rose to 10.3% from 5.5% in 2020.

Who made the loans?

The share of credit unions jumped to 28.8% of all new car loans issued in Q3 2022 (red line), while the share of banks fell to 29.5% (blue) and the car manufacturers’ own financing departments (“captive finance”). , while still #1, fell to 35.3% (grey) for the second straight quarter:

Gloomy sale.

The staggering cost of a new car – and the staggering payments that come with it, even with interest rates still relatively low – explain why unit sales of new cars have been a murky proposition for over two decades: sales in 2022 are on track to be there, where sales were in the late 1970s.

This year has been hampered by supply chain entanglements. But Good Times 2019 sales were also below sales in 2000.

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If the auto industry wants to sell more vehicles, it needs to do some serious navel-gazing at price levels and upgrading (2022 includes the official WOLF STREET estimate for December sales, better than last December):

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