Cars Are Now So Expensive That Seven-Year Loans Are The Norm

Once upon a time, 60-month auto loans were the norm. Slowly, that number began to creep up. Five years turned into 66 months. Then that became 72 (which apparently is easier to stomach than 6 years). Now, 84 months is quickly becoming a new popular length for auto loans, with more than one in five buyers opting for the extended period.

Has the world gone crazy, or is this just what we need to get used to now? And what does this mean for EV buyers?

Welcome back to Critical Materials, your daily roundup for all things electric and tech in the automotive space. Also on deck: the tidal wave of tariff costs has arrived, and Tesla CEO Elon Musk says more sensors make self-driving cars dangerous.

30%: Cars Are So Expensive That Buyers Need Seven-Year Loans

New cars at dealer showroom

In Q1, the share of 84-month loans hit 20%—a record at the time. But now, less than six months later, 84-month loans account for a whopping 21.6% of all new car notes, just behind the 60-month loans that account for 36.1% of buyers who finance.

From Bloomberg:

Despite the risk of owing more than the car’s worth, some lenders are pushing even longer terms.

[Mike Schwartz, Vice President of dealer operations at Los-Angeles-based Galpin Motors], who used to work for Ford Motor Co.’s lending arm, said he’s amazed to see the return of 8-year loans, which first appeared shortly before lax lending practices triggered the Great Recession of 2009. Such 96-month loans account for less than 1% of auto loans, but they are on the rise. And for years lenders avoided them altogether.
 
“We—dealers, manufacturers, auto lenders—don’t learn our lessons from the past,” Schwartz said. “I’m sure bank presidents back then said, ‘We’re never doing 96-month loans again.’ And here we are, 15 years later, and we’re getting right back into it. It’s crazy.”

One of the reasons that loans are stretching out is the cost of a new vehicle. Car prices have surged over the last five years. The average transaction price of a new car is now approaching $50,000 (EVs are slightly more expensive with the ATP hitting $56,910 in June, according to Cox Automotive).

The math is a brutal eye-opener on how much a longer loan length ultimately costs the buyer in the name of lower payments. Let’s say you buy a brand new EV at $57,000 and secure an auto loan at the national average rate (about 6.75% today). That means you pay $67,960 over the lifetime of the loan for five years, or an eye-watering $71,090 over seven years.

Many shoppers aren’t looking at the number. Instead, they’re chasing the lowest monthly payment, especially with higher interest rates. The difference between a five-year and a seven-year loan is around $275 (34%), bringing a monthly rate of $800 up to nearly $1,075 by extending the loan by two years.

So what’s the alternative? Buyers can look to pony up a higher down payment, potentially keeping their old car on the road for longer while they save. Or, buyers can lease and let the leasing company work out the residuals in exchange for a lower monthly payment.

Either way, if you’re ready to sign on the dotted line ahead of the EV tax credit expiration, maybe consider how much more it will cost over the length of the loan to extend it out just a few more years.

30%: With No Affordable Alternatives, Automakers Begin Early Stages Of Moving Production To U.S.

Photo by: Volvo

The effects of global tariffs were expected to ripple across the auto industry. They weren’t expected to hit like a tidal wave. Car brands are now facing a fight to keep their heads above water while a riptide of supply chain surcharges pulls them out to sea. A lifeboat for these brands—the only one in sight, at least—is on-shoring production to the U.S. That’s certainly a net good for American workers and American manufacturing, but how quickly can it happen, and what will it do to new car prices? 

According to Canadian suppliers speaking to Automotive News, global automakers are probing just how fast a switch can be made. Brands that would normally build parts in Europe and Asia are now looking for fresh quotes on how much it would cost to build an equivalent component in North America.

Here’s what Automotive News has on the matter:

Automakers based in Europe and Asia are looking at shifting vehicle assembly to the United States and pricing out the cost of local auto parts production, as U.S. auto tariffs begin reshaping the industry, according to two Canadian suppliers.

“We are starting to see examples of production volumes being reshored to the U.S., as well as inquiries from our customers regarding readiness plans for moving volumes or relocating next-generation programs,” Peter Cirulis, CFO of Martinrea International Inc. told financial analysts on an Aug. 13 conference call.

The customer inquiries are industry-wide, and include automakers based in Europe and Asia that are exploring new assembly plants in the United States, said Cirulis.

Tariffs have effectively made it difficult to ship a completed car into the U.S. Although preliminary trade deals with Japan, Korea, and Europe have been on the table for months, there’s no denying that car manufacturers are exploring every possible avenue to mitigate the direct impact of these tariffs. It appears that some automakers will not bear the cost of the tariffs and are instead seeking a shift in where they assemble cars.

The U.S. is the likely winner for assembly location. That’s because full vehicles imported from Canada and Mexico still face a 25% tariff while parts manufactured in either country have an exemption under the USMCA.

So far, customers in the U.S. have not seen prices go up due to tariffs—for now, anyway. But many analysts expect that could change in the coming months, and even if onshoring is the goal, it doesn’t happen quickly.

Big suppliers with a global presence are the real winners here with a ton of leverage. Small and medium shops, like those that Japanese automakers have built their foundation on for decades, carry the most risk as brands shift their parts production to North America. Many even risk going belly-up should the global import volume be shifted drastically. Japan started deploying economic teams to assess this risk back in April as the writing began appearing on the walls.

60%: Musk Says Lidar And Radar Make Self-Driving More Dangerous

Photo by: Volvo

Tesla has bet big on vision. Using only cameras, CEO Elon Musk promises to solve self-driving in the very near future—by the end of the year (again), even. That’s not the direction that players in the autonomy space are going, though. In fact, Uber’s CEO believes the sensor-fusion approach that companies like Waymo are taking is the right path.

“Solid-state Lidar is $500. Why not include Lidar as well in order to achieve superhuman safety?” said Uber CEO Dara Khosrowshahi during a recent interview. He later continued:

“All of our partners that we’re working with now are using a combination of camera, radar and Lidar. And I personally think that’s the right solution, but I could be proven wrong.”

The comment must have irked Musk, because he rebutted Khosrowshahi’s stance to defend Tesla’s camera-only autonomy stack. Musk noted that the automaker decided to ditch everything except for cameras due to “sensor ambiguity,” or the fact that the sensors equipped on the car can’t agree on what they see while driving.

“Lidar and radar reduce safety due to sensor contention. If lidars/radars disagree with cameras, which one wins?” asked Musk on his social media platform, X. “This sensor ambiguity causes increased, not decreased, risk. That’s why Waymos can’t drive on highways. We turned off the radars in Teslas to increase safety.”

Tesla’s camera-only design isn’t some sort of philosophical belief anymore. It’s core to the automaker’s business model. The lack of lidar rigs and radar modules isn’t just shaving down the cost of its products to ensure a bigger profit margin, but it’s also changing the way that Tesla approaches safety, autonomy and vehicle efficiency. Cameras run leaner, lighter and cost a lot less than $500. In a perfect world, they do make sense.

However, Tesla has proven that solving autonomy is extremely difficult. That’s especially true with a camera-first (let alone camera-only) approach. Companies like Waymo are “a couple years” ahead of Tesla’s Full Self-Driving, namely thanks to its advanced sensor tech. The same sensors that Musk previously called a “crutch” and still says cause ambiguity.

Khosrowshahi says that he could still be proven wrong by Musk in the end. “I think in the near-term it is going to be very difficult—Elon would tell me I’m wrong, and never bet against him—it’s my instinct that in the near-term, it’s going to be very difficult to build a camera-only product that has superhuman levels of safety,” he said.

100%: Does ‘Made In America’ Matter To You (And Are You Willing To Pay The Cost)?

It’s kind of funny how many “foreign” cars are really made in America these days. Think about BMW for a second. More than 225,000 BMW SUVs are exported annually from the U.S.—kind of insane to think that more than 9% of the vehicles BMW sold were built in Spartanburg, South Carolina.

More and more automakers are going this way. Not to scratch the itch of those who seek protectionism, but in the name of profits. First, it was to qualify for the EV tax credit. But now? It’s to avoid tariffs. Either way, they get to slap that big ol’ metaphorical Made in the USA sticker on it.

I do wonder how much that really means to buyers, though. Let’s put a hypothetical out there: if you had the opportunity to buy the same vehicle built in the U.S. or abroad, which would you choose? Would that change if the vehicle cost $5,000? Let me know in the comments.