Lower Interest Rates Prevail, Trade-Ins on the Rise

Grace Hamulic

A majority of new-vehicle buyers or lessees (77.5%) received APRs on their purchase or lease deals below 5% in July this year, much higher than in the same month a year ago (71%). In addition, the average APRs were 4.30% for financed transactions and 2.68% for lease deals, slightly lower than the average 4.48% (finance) and 3.02% (lease) APRs in July 2010, based on our Power Information Network® (PIN) retail transaction data. In the first two weeks of August, 77.6% of buyers and lessees received APRs that still averaged below year-ago rates (4.35% for financed deals and 2.70% for lease transactions).

Additionally, more than one-half of all transactions in July this year included a trade-in (52.6%), which was up 4.4 percentage points from the same month last year, when only 48.2% of all deals included a trade. More than half of all deals in the first part of August this year have included a trade-in (51.6%).

Which models are most (or least) likely to have a trade- in? In July 2011, the model with the lowest trade-in percentage (only 12.2%) was the eco-friendly Nissan Leaf battery-electric vehicle (BEV), which suggests that buyers are likely purchasing it as a second (or even third) vehicle. On the flip side, another Nissan model and a Chevrolet model tie for the highest rate of trade-ins. Among models purchased or leased in July 2011, 76.1% of Nissan Titan and Chevrolet Avalanche deals included a trade-in.

On an encouraging note, in July 2011, the percentage of negative equity remained down from a year ago—22.1% of trade-ins on new vehicles in July were “upside down,” compared to slightly less than one-fourth in July 2010 (24%). And, in the first two weeks of August 2011, PIN data reveals that 22.3% of trade-ins on new vehicles were upside down.

A few more comparisons of retail new-vehicle buyer demographics during July 2011 vs. July 2010, and during the first two weeks of August 2011, are highlighted:

• The average age of vehicles traded in for all nameplates in July 2011 and in the first two weeks of August 2011 matched the average trade-in vehicle age from a year ago—5.9 years, which may indicate that consumers are keeping their vehicles for about the same length of time as they were a year ago.

• Although the average customer cash rebate for all new-vehicle transactions was much lower this year—averaging $2,191 in July 2011 ($423 less than the $2,614 in July 2010) and $2,212 in early August, customer cash rebates were more popular in July and early August of 2011 compared with a year ago.

• The percentage of customers who received a cash rebate as part of their purchase rose in July 2011, to 48.3% vs. 45.5% in July 2010. In the first two weeks of August this year, the figure edged up to 48.4%.

• At the same time, the average new-vehicle transaction price (less customer cash rebate) for all brands was up 4.3%, or $1,211, to $29,538 this year from $28,327 in July 2010. In early August, PIN data shows an average transaction price of $29,235, down slightly from July.

• The average transaction price (less customer cash rebate) for non-premium deals in July 2011 was 5.4% higher than a year ago ($26,935 vs. $25,560). However, that is likely due to a shortfall of some of the smaller import models from Japan as well as new and redesigned models coming into the market and fewer cash rebates being offered. In early August, the average retail transaction price (less customer cash rebate) for a non-premium new vehicle had dropped just $80, to $26,855.

• Credit offered by automaker captive finance arms has been easing, and leasing accounted for 19.3% of all new deals in July 2011, compared to 18.4% of retail transactions in July a year ago. The percentage of lease deals remained steady at 19% in early August.Grace Hamulic, PIN Production Manager at J.D. Power and Associates

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