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Retail ·Autos


THE AVERAGE PRICE OF A NEW CAR IS OVER $47,000—BUT ANALYSTS SEE PRICES DROPPING
ALL THROUGHOUT THE REST OF THE YEAR

BYTom Krisher and The Associated Press
February 28, 2024 at 4:09 PM GMT+1
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How expensive are cars going to be?
AP Photo/David Zalubowski, File

Price increases for cars and trucks in the United States, which helped fuel
inflation for nearly three years, are slowing and in some cases falling, helping
cool overall inflation and giving frustrated Americans more hope of finding an
affordable vehicle.



Behind the price slowdown is a vastly expanded number of vehicles on dealer lots
after years of severe shortages. With more autos available, the pressures that
had sent prices surging have eased. At the end of January, American dealers had
2.61 million new cars, trucks and SUVs on their lots, according to Cox
Automotive. By contrast, the supply a year ago was just 1.74 million.



Though inventories of new autos are still well below the roughly 4 million level
that prevailed before the pandemic, analysts and dealers say the rising
availability suggests that 2024 will be the most affordable year of the past
five in which to buy a new car or truck.

“When the lots are empty, there’s not much of a bargaining position from a
consumer standpoint,” said Glenn Mears, owner of a four-dealership group around
Canton and Dover, Ohio. “But now that we have inventory, it’s much more
competitive. Much more like it has been historically.”

The price spikes that followed the 2020 pandemic were caused mainly by a
worldwide shortage of computer chips, which are vital to auto manufacturing and
had forced plants to curb production. As vehicle availability shrank, prices
soared. By 2021, some dealers had no new cars at all in stock. Many frustrated
buyers turned instead to the used market. The resulting surge in demand for used
cars caused those prices to surge, too, elbowing many people out of the auto
market entirely.



But with computer chips now abundant, auto production is rising steadily,
especially since the United Auto Workers returned to work after strikes last
fall.

The average price paid for a new vehicle in the United States fell 1.2% in
January from a year earlier, to $47,338, according to data collected by
Edmunds.com. That’s down 2.4% from a peak of $48,516 set in December 2022.
Though the drop is relatively modest, analysts predict that prices will keep
falling this year, especially for new vehicles, as availability grows and
automakers are compelled to lower prices.



The average price of a used vehicle — $27,297 as of last month — is down 3% from
a year ago and 12% below the peak of $31,095 in April 2022. Analysts expect
used-auto prices to fall further before rising slightly once the peak buying
season resumes in the spring.

In January, automaker discounts on new vehicles, including rebates and
low-interest financing, averaged $1,469 per vehicle — five times what they had
averaged a year earlier.

“What we anticipate is that there will be significantly more discounting, more
incentives,” said Michelle Krebs, executive analyst for Cox Automotive. “We’re
already seeing that.”

When Gary Morrow of Pickerington, Ohio, started shopping for a new SUV earlier
this month, he wasn’t prepared to receive any discount at all. But he was
pleasantly surprised when Larry Scott’s dealership in Columbus, Ohio, offered a
$500 cash incentive, plus a five-year 4% loan — far below the roughly 7% average
new-car loan — on a Hyundai Palisade SUV that cost him around $47,000.

“You can’t look a gift horse in the mouth,” said Morrow, a retired teacher. “I
was pretty comfortable with the final figure.”



Thanks to the lower-cost financing, Morrow said he managed to keep some money he
had set aside for the new vehicle invested, where he hopes it will deliver a
higher return than the rate on his 4% loan.

New vehicle prices didn’t rise at all from December to January, government
figures show. Still, they’re up more than 21% since the start of 2020, when the
pandemic erupted and triggered severe parts shortages. For used vehicles, the
average price dropped 3.3% last month, though at just over $27,000 it remains
32% above the pre-pandemic average.

In contrast to conventional gasoline-powered vehicles, the average price of an
electric vehicle actually rose 2% during the past year to $60,630, according to
Edmunds, despite a growing supply of EVs. But analysts say that sharp price cuts
by Ford and Tesla, along with the introduction of some more affordable models,
should help lower average EV prices.

Scott, the general manager of Germain Hyundai in Columbus, said that before the
pandemic, he typically had 400 to 500 vehicles on hand. That figure plummeted at
the height of the computer chip shortage to just 30-50 vehicles during some
months. By last year, his average supply was about 150. Now, it’s up to 250 to
275 — enough to compete with rival dealers who, like Scott, are offering
discounts.

Even with prices edging down, Ivan Drury, director of insights at Edmunds,
doesn’t foresee sales of new vehicles rising dramatically this year. Still-high
loan rates mean that monthly payments remain burdensome for many at a time when
buyers are seeking affordable options. Edmunds envisions U.S. sales rising a
modest 0.5%, to about 15.7 million, this year, still short of pre-pandemic highs
around 17 million.



Automakers, Drury said, are offering discounts mainly for slower-selling
vehicles. But he said he thinks discounting will extend to additional vehicles
in the coming months, meaning that buyers who don’t need a vehicle right now
might be wise to wait.

Unlike with new vehicles, there’s still a limited supply of used cars, trucks
and SUVs, which will likely serve to limit any price declines. That’s mainly
because the sluggish sales of new cars since 2020 has resulted in fewer
trade-ins and vehicles coming off leases into the market, thereby keeping
used-vehicle supplies tight.

Prices for some 1- and 2-year-old vehicles, Drury said, are nearly as expensive
as the prices automakers are charging for new vehicles. Low-mileage 2023 Honda
Accord EX models, for example, are being advertised at close to $28,000. At
$31,000, the base price for a new one, including shipping, is not much more.

With an average used-vehicle loan rate of 11.5%, Drury said, it might be more
cost-effective to pay slightly more for a new vehicle in order to secure a
reduced rate from an automaker’s finance arm.

For now, popular brands known for reliability, like Toyota and Honda, aren’t
offering discounts as generous as others.

“If you’re willing to jump ship,” Drury said, “be brand-agnostic. You can find a
deal. They do exist.”

Subscribe to the new Fortune CEO Weekly Europe newsletter to get corner office
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