Auto sales in the US are predicted to rebound strongly in the third quarter as cheap auto loans and the growing use of private transport amid the pandemic sees Americans return to car showrooms.
According to the latest JD Power forecasts, new vehicle retail sales in September are expected to reach 1,157,800 units, a 3.4% increase compared with September 2019. As a result, the seasonally adjusted annualized selling rate is expected to hit 15.7 million new vehicles in September, down 1.6 million from a year ago, but way past the multi-decade low of 8.6 million vehicles recorded in April, when lockdown saw automakers lay idle and buyers were confined to their homes.
“Retail sales in September are poised to post the first year-over-year gain since February, a milestone in the recovery from the disruption that COVID-19 has had on the industry,” said Thomas King, president of the data and analytics division at J.D. Power. “While the results are flattered by the Labor Day holiday falling within the month, the performance points to strong underlying consumer demand for new vehicles.”
Why are auto sales rising?
Driving the resurgence in auto demand is the COVID-19 related desire for the personal space provided by private modes of transport and the relatively cheap cost of auto loans. Traffic on some of America’s roads slumped 90% as citizens adhered to stay-at-home orders in the early stages of the health crisis, leading to the best auto insurance companies issuing refunds to policyholders whose vehicles remained unused at home. However, with restrictions on travel now either lifted or far less severe, many Americans will be preferring the solitude of their own car to public transport if at all possible.
And providing the opportunity for more commuters to strike out on their own and buy a new car are the low rates of interest currently available on the best auto loans and higher trade-in values. According to J.D. Power, the average rate for auto loans in September is expected to fall by more than 100 basis points from a year ago to 4.4%. So even though showroom prices have recently been rising, the average monthly finance payment is up only $5 to $582 compared with a year ago, while the average finance term length is up only one month to 70 months. Also helping existing car owners meet the higher cost of a new vehicle is the rise in the average trade-in value to $4,951, an increase of $634 or 14.7% from a year ago.
"Consistently lower interest rates encouraged new-car buyers — who were less likely to be financially hindered by the economic fallout of the pandemic — to pull the trigger on a purchase,” said Jessica Caldwell, executive director of insights at Edmunds. “Rising used vehicle prices also likely made the new car market more appealing for shoppers on the fence between the two. And car owners also got to leverage the extra value that trade-ins are commanding during COVID-19 to offset the cost of their next purchase."
Is now a good time to buy a new car?
Buying a new car usually constitutes a major financial decision when the world is on a steady axis. This makes arriving at a well-reasoned choice amid the uncertainty that prevails at present all the more important if you’re not to leave yourself vulnerable financially.
Your first thought should be as to whether you really need to buy a new car at all. With more people working from home due to the coronavirus, the daily commute is no longer a part of everyday life for a lot of workers; if this is you, then working out how often you’d make use of a new car outside of work is a must. If your mileage is likely to be low, maybe a brand new car isn't worth your while, and a second-hand car might suffice. Used car sales have been soaring since the pandemic, and there is plenty in your favor to secure a great second-hand deal.
If you do decide a new car will get adequate use to make it worthwhile, taking stock of your finances is the next step. Do you have money saved up that could be used to fund your purchase or would you need to take out an auto loan... and what can you afford when it comes to paying it back each month? Also think about how secure you feel in your employment, and the impact that losing your job or working reduced hours would have on your financial situation overall. Do you have an emergency fund saved up that would help cover your bills until you find a new job, and would you still be able to carry on paying off your auto loan, and still meet any credit card or personal loan payments you might need to make too?
Even though auto loan rates are low, remember that there's probably extra things you’ll need to pay for besides just the new car. An upgrade in your vehicle could easily see an uptick in the cost of your auto insurance. And if you’re buying a used car, you’ll definitely need to consider the best extended car warranties to protect against parts failure, and also probably the best roadside assistance services, if breakdown cover is not included as part of your deal.
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