It’s no secret we find ourselves in a challenging economic environment. Interest rates are at their highest in decades, inflation has eased but remains impactful, and the cost of living has surged over 30% since 2019, while median household income has dropped by 3%. Housing, energy, healthcare, and transportation costs have all risen significantly.

During this same time period, vehicle prices and monthly loan payments have skyrocketed, driven by limited supply, high inflation, and OEMs focusing on more expensive models. Monthly vehicle payments have increased by 32%, pushing consumers to live paycheck to paycheck, or rather, "payment to payment." Affordability is now at the forefront for consumer decision making. 

In our current economic state, understanding affordability is crucial. With nearly 90% of vehicle shoppers prioritizing monthly payments over sticker prices, offering clear and accurate monthly payment options is a necessity, not a luxury.

Automotive retailers have operated through the lens of Market-Based Pricing since it was first introduced by vAuto in 2007.  Consumers learned to compare the vehicle price amongst retail competitors to find the best deal.  Given the shift in their focus towards payments, the new reality is an expectation for Market-Based Affordability.  Rather than lead with the price of the vehicle, we need to focus on the monthly payment, showcasing the vehicles that both meet the feature as well as budgetary needs of customers. In short, ‘is the car I’m interested in something I can actually afford?’ Dealers have hesitated to answer these types of questions upfront, which has led to a decline in buying experience sentiment. This lack of transparency early in the shopping process leads to fewer leads, lower engagement, and lost sales.

We operate in a ‘payment driven world’ where monthly payments dictate purchasing power and decisions—whether for housing costs, streaming services, software subscriptions or even e-learning. Consumers are accustomed to knowing monthly costs upfront, before stepping foot in the showroom. Why can't dealerships and their software vendors provide clear affordability data from the outset?

It's no secret that payments are complex- there are over 80+ variables that can adjust a payment. Pricing is public, but payments are personal. Why? Because every vehicle, shopper, and payment is unique. To deliver expectations on Market-Based Affordability, the industry must evolve or risk being left behind.

Impact on Stakeholders:

• Customers: Delayed payment information frustrates shoppers, leading to decision fatigue and diminished loyalty.

• Dealers: Without prompt payment data, dealers face lower conversion rates, longer sales cycles, and reduced profits. Manual processes for managing changing rates and incentives leave money on the table.

• Vendors: As software providers, we must empower dealers to meet customers’ affordability expectations. If we don’t, we’re failing to serve our most critical partners—dealerships.

When Market-Based Pricing was first introduced, Dealers who embraced it moved more inventory, increased customer satisfaction and in turn, made more profit. Now, it’s time to shift the focus to Market-Based Affordability, enabling software providers and their dealer partners to better serve customers and thrive in today’s market. Payments are the new price. And those of us who don’t adopt will be left behind. The team at Carmatic is tackling this problem head on and we look forward to providing the necessary tools to meet the affordability needs of vehicle shoppers everywhere.