Car Prices Are Tilting in Your Favor After Years of Favoring Dealers
Rising automobile inventories are shifting the supply/demand balance in favor of buyers. As a result, 2024 may be your year to get a good buy on your next vehicle.
The average price of a new vehicle sold last month was $48,759. Although that was 1.3 percent higher than November, it was 2.4 percent lower than the same time the year before. In addition, December marked the fourth consecutive month that sales prices were lower year-over-year.
Historically, new vehicle prices rise year-over-year. Conversely, Covid-19 put that trend on steroids.
“When we look at price strength, the pandemic created a seller’s market in which new vehicles were transacting above manufacturers’ suggested retail price in 2022,” said Michelle Krebs, executive analyst for Cox Automotive. “That market is all but gone now, as higher inventory has led to higher incentives and discounts – lower margins for dealers – and vehicles are now typically selling for under MSRP (manufacturer’s suggested retail price). The shift from a seller’s market to a buyer’s market is well underway.”
Prices Rose on Supply Drop
With the pandemic disruption of the supply chain and manufacturing, the production of automobiles in the U. S. went into decline. That resulted in dramatically higher new and used car prices.
New car prices rose by less than three percent per year through most of the 2010s. However, with the outbreak of Covid-19, that all changed. From 2019 to 2020, prices climbed 5 percent. Then they jumped 17.2 percent through 2021. In addition, used car prices rose 18.2 percent over the same time period.
Last year production was also hampered as a result of a one and a half month strike by the United Auto Workers union. However, manufacturing rebounded quickly.
The State of Play
The Supply of unsold new vehicles in the U. S. has reached 2.56 million, according to Cox Automotive’s analysis. In comparison, that is 925,000 more vehicles than this time last year, or an increase of 57 percent.
The new car supply is now at its highest level since Spring 2021, according to Cox. In addition, days of supply rose from 69 in November to 71 last month. The December figure was 17 days higher than the same time last year.
Days of supply is an industry measure of how long it would take a dealership to sell its current inventory. While having days of supply in the 70s is tending toward the pre-pandemic norm, it is still far from the 86 day average during the summer of 2019.
Dealers Offering More Buyer Incentives
Increased inventory is prompting dealers to employ more incentives such as price drops, to sell more vehicles.
“Carmakers used more incentives to attract buyers than at any point in the past two years,” Kelley Blue Book reported regarding year end sales.
On average, incentives made up 5.5 percent of the average vehicle transaction price in December. That represented a two year high. In addition, it was more than double last year’s 2.7 percent incentive rate. Although that is an up tick over the last couple of years, it is well below the 20 percent average in 2020.
“While consumers may feel some relief in vehicle prices and incentives as we close out 2023, automakers and dealers are feeling the results of the downward price pressure,” said Rebecca Rydzewski, research manager at Cox. “The latest dealer sentiment survey by Cox Automotive clearly indicates that dealers are seeing profits contract as inventory levels return to normal, and incentives are turned up to help stimulate sales.”
If You Go Shopping
Supply and incentives are generally growing. However, those trends are not universal.
Luxury brands and electric vehicles were offering the most incentives to buyers at year’s end, according to Cox. Incentives for that segment of the new car market averaged above 8 percent. In contrast, full size SUVs, minivans and small to midsize pickups offered incentives below three percent.
Kelly’s review of 35 brands in December showed that 18 had year-over-year decline in vehicle price. In November, 16 had price declines. By far the greatest decline was Tesla’s 25.1 percent. The biggest price jumps came from Ram 11.5 percent, Hyundai 8.4 percent and Porsche 6.1 percent.
Used Car Prices Stabilizing
Used vehicle prices hitched a ride on new car supply shortages during the pandemic. However, last year those prices whipsawed ending down seven percent.
December’s average used vehicle sold for $26,091, according to Cox. That was down 3.9 percent from December 2022 and 7.5 percent lower than December 2021.
Cox sees used vehicle sales and prices remaining steady this year.
At the same time, days of supply for used vehicle dealers is trending upward. Manheim, a wholesale vehicle auction firm, reports that days of supply stood at 56 days last month. That is an increase of two days over November.
Just as in the new vehicle market, greater days of supply puts more pressure on used vehicle dealers to reduce prices.
Some Manufacturers Cut Production
In the new vehicle market, General Motors is reducing production for maintenance and product changeovers. Three of the company’s four major brands (Buick, Chevrolet and GMC) are above the national inventory average. Cadillac is below the national average.
Stellantis, maker of Jeep, Chrysler, Ram, Dodge and others recently cut shifts and production at Jeep plants in Detroit and Toledo, OH. The manufacturer cited tough emission standards by many states as a reason for the changes. At the same time, Jeep’s days of supply rose to 128 as of December.
EV Supply Helps Push Prices Near Parity
Sales of electric vehicles (EVs) continue to rise. However, inventories have been rising faster. The supply of new EVs at the end of November stood at 114 days.
The average price paid for a new EV in December was $50,798. That was down from $52,362 the previous month. At the same time, incentives for EVs topped out at 10.6 percent in December. Consequently, that marked the highest incentive of 2023. The prior year EV incentives were below two percent.
In addition to dealer incentives, certain EVs qualify for tax incentives up to $7,500 in 2024. That is good news for those who may have shied away from new EVs due to the price.
“In recent months, price parity between EVs and ICE (internal combustion engine) has almost seemed possible,” said Stephanie Valdez-Streaty, director of Strategic Planning at Cox. “It is a complicated measure with plenty of variables, but newer products and higher discounts have brought down average EV prices, even before potential tax incentives. A year ago, the EV premium was more than 30%. Today, it’s less than 10%.”
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