Prices for new cars have been going up for years, but they are finally starting to level off.
Inventory levels are slowly coming back up, giving shoppers more choices as they look around stores, and some, if not much, discounting has returned to the market.
Prices for used cars haven’t gone down consistently yet, but price growth is slowing, which is a good sign.
According to Cox Automotive, the average used vehicle listing price at the end of September 2022 was $28,237.
To put this in context, the average used vehicle listing price in September 2021 was $26,646. This was around 25% more expensive than the year before.
What is causing the price instability?
Price stability has been caused by two main things:
- an increase in supply and
- a lack of affordability.
Used car dealers in the United States had 2.46 million vehicles in stock as of September 2022.
This is 10% greater than the inventory figures from September of last year.
New vehicle inventories
are growing. The inventory of new vehicles finished September at its highest level since June 2021. More new car inventory will provide prospective purchasers with more options.
Affordability is becoming increasingly important. With prices rising at the rate they have in recent years, demand has decreased as some buyers exit the market.
Role of Interest Rates
The Federal Reserve (Fed) has been raising interest rates at a historical rate to fight inflation. This makes it harder to get a loan to buy a car.
As a result, financing a vehicle becomes more expensive and less affordable.
According to Edmunds, an American website that lists and researches cars, the average interest rate for financing a used car was 7.4% in the third quarter of 2021. The average interest rate in the third quarter of 2022 was 9.0%!
As the Fed raises its target rate, these rates are projected to rise.
Ian, the hurricane
At the end of September, Hurricane Ian damaged much of Florida’s Gulf coast. It will take months to determine the extent of the damage.
However, according to Mark Friedlander, the Insurance Information Institute’s head of corporate relations in Florida, “we’re expecting more than 300,000 destroyed vehicles from Hurricane Ian.”
Floridians will need to replace their vehicles soon as they recover from the calamity. Cox Automotive thinks that about two-thirds of these replacements will happen in the months of October and November.
Also, because short-term demand is going up, they think that about 80% of the replacements will come from the market for used cars.
The good news is this will have just a temporary impact on national used-car retail sales. They anticipate only a minor increase in average pricing in October.
According to J.D. Power data, the average price paid for a new vehicle reached a record of $46,173 in July and has been going downward in subsequent months.
According to the firm’s research, consumers paid an average of $45,600 for a new car or truck in October, a few hundred dollars less than the summer record but still 33% more than before the epidemic.
Recent earnings calls focused on how well automakers could keep buyers paying top dollar for cars, which was a key factor in the industry’s ability to make money during the pandemic.
Analysts wondered how higher interest rates and worries about a recession could stop the recent price momentum, which has helped the whole industry make more money in recent quarters.
They are still confident that a backlog of unmet demand will keep car prices high over the next few months.
This is because manufacturing problems are still making it hard to make enough cars to meet demand.
Changes in the US auto industry
They are a reflection of broader changes in the economy. As consumers and businesses cut back on spending, firms are losing the pricing power they’ve had for the past few years.
Even while supply-chain bottlenecks keep costs high, some buyers are feeling overburdened and are delaying or skipping purchases.
Throughout much of the pandemic, new and used car prices have been rising, pushed up by supply-chain snarls and nearly empty dealership lots as automakers try to get their plants fully operational again.
More than half of the vehicles sold in October were electric.
But this year was a turning point. Customers were becoming less willing to pay because of inflation and fears of a recession. sold for more than their quoted sticker price.
Several publicly traded auto dealers reported a drop in used-car gross margins in the third quarter, which shows that the downturn is already having an effect on dealer profits.
Meanwhile, dealership stock levels are improving, having gradually increased throughout the summer.
According to Wards Intelligence, a business that studies auto-industry data, the number of new vehicles and trucks on lots or on their way to retailers at the end of September was around 1.4 million, up 46.9% from the same month a year ago.
At earnings conferences this week, executives said that the supply-chain problems that have been plaguing the industry in recent years, especially in semiconductors, were getting better.
“Overall, I would think chips are getting better than they were a year ago,” said General Motors Co. Chief Financial Officer Paul Jacobson to reporters on Tuesday.
“Part of that improvement is that we were still able to make things while getting rid of some of those vehicles.”
Hope for Buyers
With more options becoming available, sales incentives like low-interest financing, which was popular before the health crisis, have come back.
According to Ivan Drury, automakers such as Buick and GMC have started offering 0% financing rates on loan durations as little as 36 months.
“You save a lot of money in interest—about $7,000 to $10,000.” “However, you must pay off the car in half the time,” he explained.
Still, the amount of discounting remains at record lows, and while prices appear to be slowing, analysts, executives, and dealers believe it will be a long time before they return to the levels observed at the end of the previous decade.
After seeing the benefits of keeping supply tight, automakers are reluctant to return to the days when lots were filled with surplus inventory.
The availability of new vehicles
Even though the number of cars and trucks is going up, inventories have dropped so low this year that many manufacturers are still struggling to fill them up.
“When can I expect to find a decent price on a new car?”
That’s a good question. The answer is that it depends.
If a shopper is looking for a great price on a new Kia Telluride, they are likely to be disappointed. If the same consumer is looking for a $65,000 Ram 1500 truck, the response is an unequivocal YES.
There are some great deals to be had.
Pricing Factors Overview
The price buyers pay for new vehicles is mostly determined by four major factors:
- Availability of Inventory
- Manufacturer Bonuses
- Discounting by the Dealer
- Vehicle Exchange Value
Over the last 18 months, there has been minimal need for automakers or dealers to offer incentives or discounts.
Almost every new vehicle was either pre-sold at full sticker price or sold within a week of its arrival.
Margins for manufacturers and dealers have never been higher, and customers have never spent more!
Not only can supply and demand vary widely between different new car models, but it is also true in the used-car market, which has an impact on trade-in values.
It has made it harder for people to spend money on things they don’t have to.
This has caused people who buy used cars to look for ones that use less gas and are cheaper overall.
All over the country, there are a lot of expensive used cars for sale that cost more than $35,000. a few days’ availability.
Across the country, used-car inventories are currently bloated with pricey used products priced at People who trade in a 2018 Honda Civic will get a much better deal than those who trade in a 2021 Jeep Grand Cherokee.
Inventory is better; it’s just distributed unevenly.
Some major brands, like Honda, Kia, and Toyota, still only have 20 to 30 days’ worth of new cars in stock, making it nearly impossible to find “deals.”
And automakers like Chevrolet, Ford, Hyundai, and Nissan are getting closer to the industry’s anticipated availability objective of 40-to-60 days.
However, if customers want the best selection and the best pricing, they should go to their local Jeep or Ram dealer, where they may get 0% financing for 48 months or 2.9% financing for 72 months on select models.
Toyota vs Jeep
Even though Toyota sells about three times as many cars as Jeep, Jeep’s overall inventory is now within 5,000 units of Toyota’s. This is a big surprise.
In September, the anticipated incentives for a Ram 1500 pickup truck were $4,426, which was more than double the $1,933 on the Chevy Silverado and triple the $1,059 on the Ford F-150.
The Jeep Wagoneer is another Stellantis car that is cheaper than its competitors.
While competitors such as the Ford Expedition, Chevrolet Tahoe, and GMC Yukon all received incentives.
On the other hand, Kia’s large SUV, the Telluride, continues to command a segment-leading 102.4% of the manufacturer’s suggested retail price (MSRP). Consider the Honda CR-V, which has a 17-day supply and often asks for 103.4% of MSRP while offering the lowest average incentive in its segment at $450.
The end of the year has always been a great time to get a good deal on a new car.
Automakers and dealers have always been eager to give up profit in order to move some metal.
But because there isn’t much to choose from and the deals aren’t great, neither the Happy Honda Holiday Event nor the Kia Command the Season Event are likely to make customers very happy this year.
Purchasing a new car remains tough for many customers.
For the month of October, average auto loan interest rates are expected to be more than 6%. According to Thomas King, president of J.D. Power’s research and analytics group, the average monthly payment for new car purchases is forecast to be $711, up from $664 a year ago.
Rising borrowing rates, along with higher-than-normal prices, make it a difficult automobile market to enter.
Still, research shows that the number of new cars sold in the U.S. picked up in October as inventories of cars got better. This made October a good month for automakers.