UPDATE: New car prices have skyrocketed to an all-time high, with the average transaction cost reaching $49,105 in October 2023. This marks the first time prices are on the brink of $50,000, leaving many buyers reeling from the rapid market shift.
According to new data from Edmunds, this represents a staggering 3.1% increase compared to last year. Experts warn that nearly all vehicle categories are seeing price inflation, making it nearly impossible to find models at lower prices than in recent years.
“This has been something that we’ve all been waiting for; I don’t think anyone was ever expecting the number to go down,” said Ivan Drury, director of insights at Edmunds.
Drury highlighted that the rise in electric vehicle (EV) sales is significantly contributing to the record prices, as EVs typically cost more than gas-powered vehicles. Even without the influence of EVs, he emphasized that buyers should not expect any price relief. “There’s virtually no vehicle you can buy today that is cheaper than it was from last year, two years ago, five years ago,” he stated.
Returning buyers are feeling the impact of these price increases the hardest. The average trade-in vehicle is now around five-and-a-half to six years old, indicating that many shoppers last purchased a vehicle in 2019 or 2020, when prices were considerably lower. “If you’re a customer with a trade-in, and you haven’t been to the dealership for anything other than service in six years, you’re going to be floored by seeing the average transaction price being nearly $10,000 more than the last time you bought,” Drury explained.
Monthly payments are also climbing, with the average new-car payment reaching $766 in October, a 3.2% increase from last year. Although interest rates dipped slightly from 7% to 6.9%, this is still significantly higher than the 4% to 5% rates many buyers secured on previous loans. Drury pointed out that the average interest paid over the life of a loan, with an average amount financed at $43,000 over a 72-month term, is around $9,500 just in interest alone.
In a bid to attract buyers, dealers are offering more discounts than earlier in the pandemic, with average incentives rising to $2,240 in October. However, Drury cautioned that while dealerships are beginning to offer discounts, relief remains limited. “They are resorting back to providing discounts. They are getting money from automakers to put cash on the hood,” he noted.
Despite these efforts, vehicles remain on dealer lots for about 60 days, which is acceptable by industry standards but longer than many dealers prefer as they aim to keep inventory moving. Analysts warn that buyers will continue to face affordability challenges as they head into 2024.
As the market evolves, potential car buyers are urged to stay informed and consider their options carefully. With prices and interest rates remaining high, many are likely to feel the squeeze as they navigate this unprecedented automotive landscape.
