Black Friday car deals are sparser this year, analyst says: 'Buyers may be a little disappointed'

U.S. new-car deals are scarce despite rising inventory: average MSRP was $51,345 in October with the average price paid $49,105 (a $2,240 discount), roughly 3.9% above last year and well above pre-pandemic sticker and discount levels. Higher financing costs—average five-year new-car loan rate ~7.07%, four-year used ~7.52%—and longer loan terms (22% of buyers on seven-year-plus loans) are pushing monthly payments (average $766) and total interest paid higher, likely constraining demand even as dealer incentives remain muted. Dealers sitting on older stock and customers with paid-off trade-ins may still negotiate, but overall consumer purchasing power is being eroded by elevated prices and financing costs.

Analysis

Market structure: OEMs and established aftermarket/service chains are the primary beneficiaries — OEM sticker pricing averaged $51,345 vs $49,105 paid (discount ~$2,240) and incentives remain below 2019 levels, which preserves OEM/dealer margin power even as inventory normalizes. Losers are marginal-volume EV startups and used-car retailers that rely on steep incentives or high trade-in residuals (pressure if monthly payments stay near $766 and loan rates ~7%). Higher share of 7+ year loans (22%) signals demand elasticity — buyers push tenor, not price, shifting credit risk to lenders and ABS investors.

Risk assessment: Near-term (days–weeks) catalysts: month-end dealer incentives and holiday promos; short-term (1–3 months) risk: rising unemployment or a 50–100bp jump in benchmark yields that would lift auto loan rates and push delinquencies; long-term (quarters) tail risk: a sustained 200–300bp rise in 60+ day delinquencies that could widen auto ABS spreads and hit credit banks (Ally ALLY, COF). Hidden dependency: residual values (used-car prices) drive dealer profitability and captive finance losses — a 10% drop in used values would meaningfully compress dealer free cash flow.

Trade implications: Overweight aftermarket/service (ORLY, AZO) for 6–12 months; aftermarket demand should be resilient if new-car affordability stalls. Short high-cost used-car platforms/retailers (KMX, CVNA) and higher-beta EV names (LCID, RIVN) on 3–9 month horizon; buy puts or put-spreads sized 1–2% portfolio to limit carry. Credit: hedge auto ABS exposure by buying protection or shorting auto ABS ETF/indices if 60+ day delinquencies rise >50bps month-over-month; expected spread widening 50–150bps in stress.

Contrarian angles: The market underestimates aftermarket upside and OEM margin stickiness — consensus is bearish on autos but sticker/pricing data show OEMs retaining room to avoid deep incentives. Reaction to rising inventory could be overdone for high-quality OEMs (TM, F) while being underdone on service chains (AZO) and lenders with conservative underwriting. Historical parallel: post-supply-shock normalization (2021–22) showed residual-price reversion benefits service parts; unintended consequence: longer loan tenors (7–8 years) raise lifetime interest and default risk, compressing securitization spreads over 12–24 months.

Key Decisions for Investors

• Establish a 2–3% long position in AutoZone (AZO) or O'Reilly (ORLY) within 30 days, target 6–12 month hold; thesis: aftermarket spends rise as new-car purchases stall. Trim/exit if same-store sales fall >3% YoY or share rises >25% from entry.
• Initiate a 1–2% short (or buy 3–6 month put spread) on CarMax (KMX) or Carvana (CVNA) sized to risk appetite; trigger entry immediately and widen if average dealer discount expands to pre-pandemic levels (~$3,000) or 60+ day auto loan delinquencies increase >50bps MoM.
• Buy a 1% portfolio hedge on auto credit: purchase protection on auto ABS via tranche CDS or long an auto-ABS inverse/hedge ETF if 60+ day delinquencies rise >50bps within 90 days; target spread widening 50–150bps for tactical profit.
• Add a 1–2% long to large-cap OEMs with strong balance sheets (Ford F, Toyota TM) if monthly reported dealer incentives remain < $1,000 and average discount stays < $2,500 through Q1 2026; cut if incentives jump >$1,500 or new-vehicle transaction price declines >3% QoQ.