New vehicle prices are dropping, but auto insurance rates are continuing to rise across the country.
Drivers are seeing some leniency in new vehicle prices, largely thanks to lowering interest rates on auto loans, the Cox Automotive/Moody’s Analytics Vehicle Affordability Index shows.
The average interest rate on new vehicles decreased to 10.47% in March, the lowest average since September. That said, consumers shouldn’t get too excited, as the low prices might not stick around long.
"The positive moves were assisted by the first material decline in interest rates in over two years," Cox Automotive Chief Economist Jonathan Smoke said. "However, given the move-up in rates so far in April, that decline is likely to be short-lived."
Average payments on new vehicles decreased slightly by 1.2%, helping buyers find some room in their budget. With this added room, more drivers are buying cars right now. Sales of new vehicles rose by over 5% from January through March.
As prices go down, the number of weeks of income needed to buy is also decreasing. When purchasing an average-priced new vehicle, buyers used 36.9 weeks of income, down from 37.5 weeks in February, the Cox Automotive report found.
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Due to consumer trends and a desire for a more sustainable future, electric vehicles are becoming more popular in the U.S., Europe and China.
Nearly 14 million new electric vehicles were registered in 2023, the International Energy Agency reported. There are now 40 million electric vehicles on the road globally, with 95% in China, Europe and the U.S. alone. Out of the 40 million electric vehicles out there, the U.S. accounted for 1.4 million of them in 2023, an increase of over 40% compared to 2022.
The jump in electric vehicle purchases has been largely driven by the $7,500 tax credit buyers can secure on certain EVs, paired with an increased awareness of how gas-powered cars are affecting the planet.
Gone are the days of just expensive Teslas and Toyota Priuses. More manufacturers have been producing electric vehicles, making them more approachable for average drivers. The number of electric car models increased by 15% in 2023. Now, there are nearly 590 different EV models.
Certain EV models are losing favor among drivers, however. Tesla sales have plummeted, so much so that the company has laid off 10% of its employees worldwide.
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NEW CAR PURCHASES ARE ON THE RISE, BUT THERE ARE INSURANCE IMPLICATIONS
Prices are coming down on certain vehicles, but auto insurance rates haven’t followed suit. Rates have done the opposite, shooting up more than 22% in the past year, according to the Bureau of Labor Statistics.
States all over the country are struggling to deal with these high rates. Rates in California and Illinois have gotten so high that insurers are pulling out altogether. Others have seen their rates practically double in the last few years as climate change and high accident rates take hold.
Rising rates have caused drivers to seek out new coverage more frequently. In March, the number of drivers who got quotes from other insurance companies rose 13.5%, J.D. Power reported. This continues the consistent increase in rate shopping that January and February also saw.
The increase in rate shopping was driven by high rates, with the percentage of shoppers reporting "my rate was too high" increasing from 16.9% to 21.3% in March. The number of drivers that faced an increased rate not related to a claim also nearly doubled from 7.9% to 14.6%, adding more fuel to the rate-shopping fire.
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