Quick Facts About Car Prices
- In November 2022, average new car transactions were up nearly 24% compared with the same month two years ago.
- New car transactions were nearly $11,000 higher in November 2022 than in February 2020.
- You can easily find a new Buick, Jeep, or Ram, though not necessarily a Honda, Kia, or Toyota.
Car shopping comes with rules. Rules like “the sticker price is just the starting point and negotiate down from there” and “cars are cheapest at the end of the month and end of the year.”
That rule book got thrown out in the last two years. Shoppers grew accustomed to paying more than MSRP, or the manufacturer’s suggested retail price. They watched prices rise steadily, with no cyclical drops. The end of well-established patterns leaves many car shoppers scratching their heads. The question we get most is, “When will new car prices drop?”
The answer is more than a little complicated. In some cases, new vehicle prices have already started to decline. In others, they may stay the same for the foreseeable future. The new world of car shopping requires an open mind and new skills.
In this story, we’ll explain how to navigate the new patterns of car buying and dealership pricing, so if you’re in the market to purchase a vehicle, you’ll be equipped with the best information we know from our experts. We also dig deeper to answer the question about car prices dropping, even if the answer remains unclear.
What Drives Car Prices
Brian Finkelmeyer of Cox Automotive likens shopping for a new vehicle to this quote from science fiction writer William Gibson.
“The future is already here. It’s just not evenly distributed.”
Finkelmeyer is the senior director of new-vehicle solutions at Cox Automotive, the parent company to Kelley Blue Book.
Car prices topped an average transaction price of $48,681 in November. That’s up 4.4% from the same month a year earlier and nearly 24% higher than in November 2020. As another point of reference, new car average transaction prices were $37,876 in February 2020. That’s an increase of nearly $11,000 in the price of new cars since before the United States government urged people to stay home because of COVID-19.
According to Finkelmeyer, these are the typical factors affecting the new prices of cars:
- Inventory Availability
- Manufacturer Incentives
- Dealer Discounts
- Trade-In Vehicle Value
However, all four have seen major disruptions in the last two years.
New Car Inventory Update
In the past several years, inventory fell to record lows, primarily driven by a worldwide microchip shortage. Without enough crucial microchips, which control everything from engine timing to navigation systems, automakers haven’t been able to build cars as fast as they’d like.
Automakers measure their stock of new cars to sell in a metric they call “days of inventory” — how long it would take them to sell out of new vehicles at today’s sales pace if they stopped building new ones. As recently as 2019, most of them aimed to keep six weeks (or 42 days) or more in stock. In 2022, many automakers’ inventory fell to just 7 days.
RELATED: Is Now the Time to Buy, Sell, or Trade-In a Car?
Some carmakers recovered, while others did not. Brands like Buick, Jeep, Infiniti, and Ram have stock, while others still sit well under normal, like Kia, Toyota, and Honda.
Incentives Differ from Brand to Brand, Lot to Lot
When automakers routinely built up an oversupply of cars, they would discount them to get those vehicles off dealer lots.
Now that some carmakers and dealerships have no glut of cars to sell, they’re barely discounting. Others still need to discount cars to move metal.
For instance, the three best-selling vehicles in America are the three full-size domestic trucks — the Chevrolet Silverado, Ford F-150, and Ram 1500. Chevrolet and Ford’s dealers currently average about a 90 days’ supply of vehicles, while Ram dealers have nearly 120 days of supply.
According to Kelley Blue Book, vehicle incentives — at 2.2% of the average transaction price in November — remain at historic lows. That compares with average incentives of 4.1% in November 2021. In November 2019, before the pandemic and when inventory was plentiful, the average incentive package was 10.6%.
Luxury vehicles offered the highest incentives in November at 4.8% of the average transaction price if you’re out looking for a car. However, vans, minivans, and luxury full-size SUVs showed the lowest incentives, all less than 1%.
Traditionally, dealers often tack their own discount offers onto manufacturer incentives. You’ll see those less often at the moment.
The More Valuable Your Trade-In, the More Disappointing the Offer
Trade-in value is the last factor driving prices and the strangest in today’s market.
“Used-car inventories across the country are currently bloated with expensive used merchandise priced over $35,000,” Finkelmeyer says.
Automakers scaled back production for several years after the 2008 recession. That leaves the higher-mileage, older cars dealers sell for less than $10,000 particularly hard to find now.
Meanwhile, high gas prices throughout 2022 have some buyers looking to shed less fuel-efficient, new-model trucks and SUVs — even if they’re relatively new.
Dealers value your trade-in based partly on what they need in stock. They’re more likely to offer a good deal on a car fewer people are looking for currently. Car dealers are oversupplied with relatively expensive used cars.
“Consumers trading in a 2018 Honda Civic will be much happier with the trade appraisal than those trading in a 2021 Jeep Grand Cherokee,” Finkelmeyer explains.
Some Vehicle Prices Started Dropping
So, when will vehicle prices go down?
For some brands and some dealerships, prices began dropping a bit.
“For some volume brands like Honda, Kia, and Toyota, new inventories remain very tight … and deals are nearly impossible to find,” Finkelmeyer says.
With other brands, shoppers must be prepared to hunt.
Still, other carmakers face a glut of new vehicles to sell. “If consumers want the best selection and the best deals, they should head down to the local Jeep or Ram dealer,” Finkelmeyer says. For example, select buyers in the Southeast can obtain up to $7,800 on select vehicles like the Ram 1500 Big Horn.
Full-size SUV shoppers will find the Ford Expedition and Chevrolet Tahoe selling this month for close to sticker price. Car buyers also will see the Jeep Wagoneer offered with a bonus cash incentive of $3,500.
Compact SUV shoppers will find discounts on the Nissan Rogue and Jeep Cherokee, but not the Toyota RAV4.
Shoppers should also be prepared to shop their trade-in around. It’s slightly more complicated to pull off, but it may make sense to sell your old car to one dealership and buy your new car from a different one if the numbers work out better. Use the Kelley Blue Book Instant Cash Offer tool to shop your trade-in to dealerships near you. When you let the deals come to you without obligation, you can select the best trade-in offer for your situation.
What to Expect: Looking Ahead
But what if you desperately want a popular car that’s in low supply? Then you may need to be patient.
“Ultimately, we believe inventory and incentive levels will increase in the future,” Finkelmeyer says. Recent Federal Reserve moves to rein in inflation make big-ticket purchases harder for everyone. That will slow sales.
The microchip shortage will likely resolve sometime in 2023. That will increase supply.
Those trends could bring down the price of even the most popular cars. But experts can’t put a date on when that will happen. Instead, Finkelmeyer says, shoppers should be flexible.
It’s already possible to find a low price on a new car. It just may not be the car you thought you would buy. Or you may need to go buy the car in a smaller town outside of the big city where the competition isn’t as tough.
Editor’s Note: This article has been updated for accuracy since it was originally published.
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