Rising interest rates and inflated vehicle prices are giving consumers second thoughts on purchasing a vehicle. A recent McKinsey & Company survey revealed that 77 percent of respondents indicated that reduced purchasing power is causing them to either postpone large expenses or be more conscious about spending, impacting car purchases. Nearly 40 percent of respondents who had intended to buy a vehicle are postponing that purchase, while a quarter plan instead to purchase a more affordable car type, citing high car prices, lack of affordability, and high interest rates for financing as reasons for their decision.
The question of financing is top of mind for consumers, according to the McKinsey survey. About 80 percent of buyers in the United States chose to finance, while about 20 percent chose to purchase outright. According to Experian and StoneEagleMETRICs, cash deals have been on the rise since the fourth quarter of 2020, with a steep rise in 2022.
While consumer interest in financing reflects growing affordability concerns, consumers also are unwilling to sacrifice certain features. Between 30 and 50 percent of respondents claimed they are very likely to prioritize vehicle size, premium brands, or higher trim when purchasing a new vehicle. The balance of consumers is likely willing to compromise, given reduced purchasing power.
