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Originally Posted by USA Today
The average price of a new vehicle has topped $40,000 for the first time ever as Americans switch from passenger cars to more-expensive SUVs and pickups.
With prices rising, the average down payment on new cars, trucks and SUVs reached an all-time high in the fourth quarter, according to analysts at car-research site Edmunds. At the same time, the average amount borrowed to finance a new vehicle was close to an all-time high. The bottom line is that Americans with the financial wherewithal to buy a new ride are still enthusiastic about it despite the ongoing pandemic.
"People that are in the new car market are somewhat insulated from the downturn experienced by the pandemic," said Jessica Caldwell, executive director of insights at Edmunds. "It’s almost like we have two different countries within this country of people who are buying new houses, buying new cars, versus other folks who are perhaps in the service industry and are struggling."
In the fourth quarter, the average price of a new vehicle was $40,179, according to Edmunds. In December, it was $40,573. Both are records. The 2020 Volkswagen Atlas Cross Sport is one of many new SUVs that have arrived in recent years, replacing passenger cars that have been discontinued, such as the VW Beetle.
The average new-vehicle buyer borrowed $35,373 and placed a down payment of $4,734 in the fourth quarter of 2020, up 5.5% and 9.4%, respectively, from the fourth quarter of 2019.
"A lot of it just has to do with cheap money," said Andrew Gilleland, general manager of Toyota's Lexus brand. "You can go out and get a pretty reasonable interest rate but also customers are looking for more equipment on their cars."
Down payments typically rise in the fourth quarter, a time when luxury buyers are more prevalent in showrooms as premium brands try to get rid of their current-model-year vehicles, Caldwell said. But the nation's pivot from cars to SUVs and pickups is driving much of the trend of increased down payments and borrowing.
With prices creeping up, new vehicle buyers in the fourth quarter agreed to average monthly payments of $581, up 1.9% from a year earlier, according to Edmunds.
Expect the trends to continue. Half of the new vehicles sold in the U.S. were SUVs in 2020, marking an all-time high, and 20% were pickups, according to research firm IHS Markit.
IHS said there's still room for SUVs to grow in popularity. The company estimated that the SUV market share would rise to 52% in 2021. Essentially all of the major automakers have added SUVs in recent years, including major entries from Toyota, General Motors, Ford, Hyundai, Subaru, Kia and Volkswagen.
The trend has changed the complexion of automakers once known for their passenger cars. Cars like the Chevrolet Cruze, Ford Focus, Honda Fit and Volkswagen Beetle have been discontinued, while SUVs like the Chevrolet Blazer, Ford Bronco, Honda Passport and Volkswagen Atlas have been created from scratch.
Scott Keogh, CEO of VW U.S., noted that large SUVs like the Atlas have much higher profit margins than small cars like the Beetle. VW has made a heavy investment to shift its lineup to SUVs in recent years, and it's worked. SUVs represented 58% of the brand's sales in 2020, up from 16% in 2016, Keogh said.
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