S5E08 - The Affordability Outlook: What the Data Says
About this episode
JD Power’s Jonathan Banks breaks down why affordability is driving “sticker shock” while the used market still looks strong for franchise dealers. He cites rising new/used prices, higher monthly payments, and tighter low-price inventory (fewer sub-$20k units due to richer trade-in mix and fewer lease turnoffs). Buyer behavior is shifting: people keep cars longer, many have equity, but there’s a split between equity-rich and no-equity shoppers. Banks argues dealers should tailor “consumer math,” lean into consistent new/used experiences, and boost certified pre-owned to create loyalty and faster turns—then use data and AI for inventory optimization and better upstream matching.
Jonathan Banks, VP of Product Retailing for JD Power’s Retailing Portfolio, breaks down macro trends across the industry, used-car profit strategies, and how dealer principals can optimize performance in the next 12–18 months.
Episode Breakdown
00:00 - Meet Jonathan Banks
01:00 - Macroeconomic trends dealers should be thinking about
03:30 - Affordability: What should dealers be paying attention to
08:09 - Strategies dealers should be using to optimize used car profits
10:49 - Thoughts on dealer certified OEMs
14:37 - Advice to dealer principals on how to optimize their stores
16:47 - Key takeaways for dealers in the next 12 to 18 months
For more information about our guest, visit their LinkedIn.
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customer psychology
"One thing I'm going to say is super important is understanding that customer psychology, it's way different. Now you're going to get almost every crediteer looking at used as an option."
Customer psychology is about how people feel and decide when they’re buying a car. Even if the numbers look similar, people may react differently depending on how worried or confident they feel.
“Customer psychology” refers to how shoppers think and react to pricing, risk, and uncertainty. The episode frames it as different from pure economics—meaning dealers need to understand how people emotionally respond to affordability.
macro economic trends
"Want to really just get into and hear from your perspective, what are the big macroeconomic trends that dealers in the automotive industry should be thinking about? 2026 is going to look a bit like 2025 and a lot of that is around."
“Macroeconomic trends” are large-scale economic forces—like uncertainty, market volatility, and consumer sentiment—that influence auto demand. Dealers need to plan inventory and pricing based on these broader conditions, not just local competition.
economic uncertainty
"2026 is going to look a bit like 2025 and a lot of that is around. Economic uncertainty. There is uncertainty indeed."
Economic uncertainty means people aren’t sure what’s coming next financially. When that happens, buying a car can feel riskier, so shoppers may choose cheaper options or wait.
Economic uncertainty is when people and businesses aren’t confident about the near future. In auto retail, it typically reduces discretionary spending and can shift demand toward lower-cost options (like used vehicles) and more cautious financing behavior.
consumer confidence
"And meanwhile, consumer confidence, as you probably have heard from others, is at one of the all-time lows."
Consumer confidence measures how optimistic people feel about the economy and their personal finances. When it hits lows, shoppers are more likely to delay purchases, negotiate harder, or move to used vehicles to reduce risk.
inflation
"And meanwhile, they have been suffering from inflation that has been perpetuating even past COVID. So affordability is a really, really big deal."
Inflation means prices keep going up. When that happens, cars and the money you pay to borrow for a car can get more expensive too.
Inflation is the general rise in prices over time, which reduces purchasing power. In the auto context, it can push up both vehicle prices and the cost of financing, making cars less affordable even after the initial shock of COVID-era disruptions.
wholesale prices
"Wholesale prices also up around 45%. And meanwhile, in the wholesale market especially, you have a lot of volatility."
Wholesale prices are what dealers pay to get cars before they sell them. If those costs rise, dealers often raise their prices to keep making money.
Wholesale prices are what dealers pay to acquire vehicles, often through auctions or trade channels. If wholesale prices rise, dealers have higher acquisition costs, which can flow through to higher prices for consumers.
used car market
"But ultimately, when we got to the end, the used car market especially, this is my focus, all the metrics were up for franchise dealers."
The used car market is the market for pre-owned cars. If it’s healthy, dealers can sell cars more easily and prices tend to hold up better.
The used car market is driven by supply (trade-ins, auctions) and demand (consumer affordability and financing). When the used market is “healthy,” it often shows up in metrics like sales volume, pricing strength, and inventory turnover.
profit per unit
"Total sales up, profit per unit up, retail price up. Days to turn was actually up, which is negative, but still sitting below 50 days."
Profit per unit means how much money a dealer makes on average for each car they sell. It helps show whether the business is truly doing well, not just selling more cars.
Profit per unit is the average profit a dealer earns for each vehicle sold. Even if total sales rise, profit per unit can reveal whether dealers are making money on each car through pricing and cost control.
84 months
"Exactly, 84 months have become somewhat of the norm. Much more years."
84 months means the loan is stretched out to about 7 years. That can make the monthly payment look smaller, but you usually pay more overall because you’re paying interest for longer.
84 months is a common long auto-loan term (7 years). Longer terms can lower the monthly payment, but they typically increase total interest paid and can leave buyers with less equity for longer.
less vehicles coming off lease
"And is part of that also tied to the fact that we have less vehicles coming off lease? Maybe a little bit."
Leased cars eventually get returned. If fewer leases are ending, fewer good, newer used cars show up for sale, which can make used prices higher.
“Coming off lease” refers to leased vehicles returning to lessors and then entering the used market (often via auctions or dealer trade-ins). If fewer leases end, fewer relatively late-model vehicles hit the used supply, which can raise prices or reduce choice.
OEMs
"So the OEMs, so remember our supply and the use comes from years ago, right?"
OEMs are the car companies themselves. What they sold in the past influences what shows up as used cars today.
OEMs are Original Equipment Manufacturers—the companies that build the vehicles (like automakers). Their production and sales mix over prior years affects what kinds of cars become available in the used market later.
higher trim
"...they started selling higher trim, richer mix, moved away from cars."
Higher trim is the more fully equipped, usually more expensive version of a car. If more people bought those, more of them later show up as used cars.
“Higher trim” means more feature-rich, typically more expensive versions of a model. If OEMs sold more higher-trim vehicles during a period, then more of those expensive configurations later enter the used market, affecting affordability.
mix factor
"So you got the mix factor and you have the higher mix just from segment and mix from trim level..."
“Mix factor” means the market is made up of different types of cars and different levels of features. If more of the cars are expensive ones, used prices tend to be higher.
The “mix factor” is the combined effect of segment mix (SUV vs sedan, etc.) and trim mix (base vs higher features) on the overall pricing of the market. Even if demand is stable, a higher-mix supply can make used inventory feel less affordable.
traded in are more expensive vehicles
"Yes, vehicles that are being traded in are more expensive vehicles to begin with. The younger vehicles being traded in are more expensive."
If people are trading in pricier cars, dealers have fewer cheaper cars to sell. That can make it harder for shoppers to find deals under a certain budget.
This points to trade-in composition: if the vehicles being traded in are higher-priced to begin with, the used inventory dealers can source (and resell) will skew more expensive. That reduces the number of lower-cost options available to shoppers.
interest rates
"And remember, my interest rates were way lower too. Oh, yes. So, and I had a more traditional loan."
Interest rates are the price of borrowing money for the car. Higher rates usually mean a higher monthly payment.
Interest rates strongly influence monthly payments because they determine the cost of borrowing. Even if a car’s price is similar, higher rates can make the payment meaningfully higher, affecting affordability and loan approval behavior.
60 month, maybe 72
"Right? 60 month, maybe 72. So I'm like, I'm rolling."
They’re talking about how long the loan lasts—like 5 years (60 months) or 6 years (72 months). A longer loan can make the monthly payment smaller, but you often pay more overall.
This refers to common auto-loan terms (60 months, sometimes 72 months). Longer terms can lower the monthly payment, but they usually increase total interest paid over the life of the loan.
equity
"But 25% of buyers don't have any equity. So there's like sort of a bifurcation in the buyer profile."
Equity is the difference between a vehicle’s current value and what the owner still owes on the loan. If a buyer has no equity, it can make trade-ins and refinancing harder, especially if the car’s value drops faster than the loan balance.
consumer math
"I'm calling it consumer math. Okay. Because some buyers come in."
“Consumer math” refers to how buyers mentally calculate affordability—typically monthly payment, down payment, interest rate, and loan term—rather than just the vehicle’s sticker price. Dealers and lenders often need to translate financing offers into simple, comparable numbers for shoppers.
sticker shock
"All consumers are going to have sticker shock. Yes. Okay. So to your point, payments..."
Sticker shock just means people look at the price tag and feel shocked because it’s higher than they expected. In car shopping, it often happens when the monthly payment and total cost jump.
“Sticker shock” is the sudden feeling of surprise or frustration when the listed price of a new car (the sticker/MSRP) is much higher than expected. In auto sales, it usually shows up when shoppers compare today’s prices and monthly payments to what they remember from pre-COVID.
Honda CR-V
"[449.5s] Now, so the affordable payment, like way back in that, you know, 19, [453.3s] I could buy a used RAV4, CRV, whatever, and it was affordable. [457.6s] Now, when I come in, I can get a Corolla or Civic,"
The Honda CR-V is a mainstream compact SUV known for practicality and strong resale value. Here it’s mentioned alongside the RAV4 as a used SUV option that was more affordable in the past.
used car profits
"[489.6s] So when we think about looking across the industry, [492.9s] what are some of the most effective strategies that dealers could be using [496.9s] to optimize used car profits? [499.1s] Yeah."
“Used car profits” are the earnings dealers make on pre-owned vehicles after accounting for acquisition costs, reconditioning, financing arrangements, and overhead. The segment sets up a discussion about strategies dealers can use to improve profitability in the used-car market.
used as a default
"Now it's like a default. They look at it as... Or they're looking at it for their child."
They mean that buying used is becoming the normal plan for more people. It’s not just for shoppers who can’t afford new.
The phrase “used as a default” means used cars are no longer primarily a last-resort option. Instead, they’re becoming a mainstream choice across more customer segments, influencing demand and pricing dynamics.
warranty
"Maybe I certify it from one year to give them like that confidence that they even buy an older model six years. They still look pretty good, but you add that warranty and confidence."
A “warranty” is the coverage that pays for certain repairs for a set time or mileage. In certified pre-owned strategies, warranties reduce buyer risk and can make a higher-priced used car feel more affordable and predictable.
Subaru
"like Toyota, BMW, Honda, Subaru, they use certified as kind of their, it's just part of their used operations, inherent."
Subaru is mentioned as one of the brands that treats certified used cars as an important part of its business. The implication is that having a real CPO program can attract more buyers.
Subaru is included in the list of manufacturers that use certification as part of their used-vehicle operations. This supports the broader claim that brands with established CPO strategies tend to see stronger consumer pull.
Toyota
"manufacturers that have certified as a tool in their brand, like Toyota, BMW, Honda, Subaru, they use certified as kind of their, it's just part of their used operations, inherent."
Toyota is one of the brands mentioned as actively promoting certified used cars. That kind of marketing can make more shoppers consider CPO when they’re shopping for a used vehicle.
Toyota is cited as a manufacturer that uses CPO as part of its broader used-vehicle strategy. The mention highlights that some brands market CPO more aggressively, which can increase consumer pull.
BMW
"manufacturers that have certified as a tool in their brand, like Toyota, BMW, Honda, Subaru, they use certified as kind of their, it's just part of their used operations, inherent... And I'm ignoring the luxury brands, but also like Alexis and BMW, it's part of the experience."
BMW is one of the brands mentioned in the context of certified pre-owned programs. The point is that BMW treats CPO as part of the overall customer experience, not just a generic used-car sale.
BMW is mentioned as a brand that uses certification within its used-vehicle operations. The segment also notes that even luxury brands are part of the CPO “experience,” implying CPO can be a key part of how BMW retains customers.
data to help make decisions
"But to me, back to the idea of dealers really pivoted nicely about 15 years ago to really utilize data to help make decisions. That was great. So that happened."
This means using numbers and information to make smarter choices. Instead of guessing, dealers use data to decide what cars to sell and how to price them.
“Data to help make decisions” refers to using analytics to guide dealership actions like pricing, inventory sourcing, and marketing. The key idea is that better data reduces guesswork and improves how quickly dealers respond to market changes.
digital aspects of the purchase
"COVID, we shifted to digital aspects of the purchase. So we streamlined the experience process and the used car also was able to benefit from that because you're able to now understand the data of the whole market from all the digitization, everything's like online, things are described better."
This means more of the car-buying process happens online. Instead of doing everything in person, customers can research and start the process digitally, which can make buying faster.
“Digital aspects of the purchase” refers to moving parts of the buying journey online—like browsing inventory, viewing vehicle details, and completing steps before visiting the store. This can reduce friction, speed up decision-making, and improve lead quality for used-car sales.
digitization
"So we streamlined the experience process and the used car also was able to benefit from that because you're able to now understand the data of the whole market from all the digitization, everything's like online, things are described better."
Digitization means turning information into digital data that computers can use. For used cars, it helps everyone compare cars more easily and can lead to more accurate pricing.
“Digitization” here means converting vehicle and market information into digital formats that can be analyzed and compared. For used cars, better digitized descriptions and listings help dealers understand the market more accurately and price more competitively.
regional demand
"You can create inventory optimization based on regional demand."
Regional demand just means different places buy different things. A dealer uses local sales patterns to predict what cars will move faster in that region.
Regional demand refers to how buying preferences and sales volume vary by geography. Dealers use it to forecast which vehicle types, trims, and price points will sell best in each area.
inventory optimization
"You can now really understand from, if you're a dealer group and you have multiple locations, you can create inventory optimization based on regional demand."
Inventory optimization is basically figuring out what cars to have, and how many, based on what local customers are likely to want. The goal is to have the right cars available without tying up too much money in the wrong ones.
Inventory optimization is using data to decide how much stock to carry and where, based on expected demand. In a dealer group, it can mean balancing supply across multiple locations so you’re not overstocked in one region and short in another.
trade-in
"...If I know what that consumer situation is from a budget standpoint, a trade-in standpoint, I could feed them the right vehicles to consider..."
A trade-in is when you bring your current car to the dealership and use it toward the next purchase. The dealer can use your trade-in details to figure out what you can afford.
A trade-in is when a customer gives their current vehicle to the dealer as part of the purchase. The segment suggests using AI “upstream” to understand a shopper’s trade-in situation so the dealer can recommend vehicles that fit the customer’s budget.
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