It appears the annual percentage rate (APR) on new-vehicle financing edged a bit lower in June, but the movement might not be connected to actions by the Federal Reserve last month.

Edmunds reported on Tuesday that the average interest rate for a new-vehicle retail installment contract dropped for the second month in a row in June, softening to its lowest level so far this year. Edmunds said the average came in at 6% in June, compared to 6.1% in May. Edmunds data revealed more shoppers received interest rates between 2% to 5% in June compared to any other month so far in 2019.

Meanwhile, Edmunds noticed APR on used-vehicle financing ticked lower in June on a month-over-month comparison, too. The June rate came in at 8.58% as May registered at 8.67%.

So what market element triggered the lower readings?

“The summer sell-down is officially in full swing, and car shoppers are finally starting to find the price breaks they’ve been hoping for,” Edmunds executive director of industry analysis Jessica Caldwell said.

“While we’re not talking about the dramatic discounts you could find just a few years ago, it’s clear automakers are realizing if they want to sell new cars at record-high prices, they’re going to have to do something to entice the average consumer,” Caldwell continued.

Caldwell noted one reason vehicle shoppers are likely finding better deals on interest rates is that automakers and dealers are becoming increasingly desperate to sell lingering 2018 models. Edmunds estimated 5.5% of new vehicles sold in June were 2018 models, the highest level of outgoing model-year sales of any June in Edmunds’ records, dating back to 2002.

Caldwell said, “2020 model-year vehicles are going to be showing up in just a few weeks, and no new-car dealer wants to have a pack of three different model-year vehicles hanging out together on the lot competing for attention.

“And the longer these 2018 models sit there, the more expensive they get for dealers to move, so there’s certainly a sense of urgency,” she went on to say.

However, OEMs and their captives are being prudent when it comes to incentives to turn that aging new metal. ALG reported automaker average incentive spending in June reached $3,747, down 1% or $37 year-over-year but up 0.4% or $16 from May

Despite the overall readings, ALG acknowledged several automakers increased incentive spending year-over-year in June, most notably Honda and Toyota, up 12.3% or $226 and 3.5% or $80 respectively.

“Increased incentive spending by several automakers in June in tandem with sustained strength in the underlying macro-economic indicators is helping drive resilient sales for both the month and quarter,” said Oliver Strauss, chief economist for ALG, a subsidiary of TrueCar. “Given these factors, we are holding our initial forecast of 17 million SAAR for 2019 made in January.”

To remain at that new-model sales pace, buyers are taking increased debt if they’re financing the purchase.

ALG calculated average transaction prices for new vehicles rose 3.1% or $1,014 year-over-year in June.

Kelley Blue Book concurred with that data, reporting estimated average transaction price for a light vehicle in the United States was $37,285 in June. KBB said those new-vehicle prices increased $1,131 (up 3.1%) from June, while decreasing $67 (down 0.2%) from last month.  

“Transaction price growth accelerated in June, climbing 3% as demand for trucks and SUVs pushed sales and prices up in those segments. Light trucks and SUVs are expected to account for about 71% of sales in June, up from 68% a year ago,” Kelley Blue Book analyst Tim Fleming said.

“Overall, SUV prices were up 4%, and trucks rose 3%, while car prices were flat (and still lost market share),” Fleming continued. “Luxury and mainstream mid-size SUVs are showing the most strength right now, with brand new models such as the BMW X7 and Kia Telluride driving incremental sales and price growth for their brands.”

ALG chief analyst Eric Lyman also touched on makes and models that are turning well as new vehicles that might portend to strong used-car sales down the road.

“New SUV product continues to be king in June,” Lyman said. “Kia’s Telluride, along with Lincoln’s Navigator and Nautilus are resonating with consumers, helping those brands move metal and increase market share this month without raising incentives.

“For the second quarter, new-car performance continues to be strong from a historical perspective,” Lyman continued. “We’re seeing a combination of exciting product and savvy incentive strategy propelling Tesla, Subaru and Honda respectively in gaining retail market share.”

Returning back to a financing dialogue, Edmunds analysts say that interest rates have and continue to be one of the biggest inhibitors for sales this year, so this seems to be the right lever to pull to get shoppers back into showrooms.

“High-interest rates have been the biggest story so far this year, and for good reason,” Caldwell said.

“The trickle-down effect has been significant for all areas of the auto market. If the Fed decides to lower rates further, it could be just that last little boost automakers need to finish the year in a solid place,” she added.

New-Car Finance Data

Used-Car Finance Data

Source: Edmunds