UPDATE: New car prices have reached an all-time high, with average transaction costs hitting $49,105 in October 2023, leaving many buyers reeling from this rapid market shift. According to new data from Edmunds, this marks a staggering 3.1% increase compared to the same time last year.
The surge in prices reflects widespread inflation across nearly all vehicle categories. Industry experts assert there are virtually no models available today that are cheaper than in prior 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, in an interview with FOX Business.
A significant factor contributing to this record high is the increase in electric vehicle (EV) sales. EVs typically carry higher price tags than traditional gas-powered models, pushing overall transaction prices “over the edge.” Drury emphasized that even without EVs in consideration, the outlook for buyers remains grim. “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.
This reality is hitting returning buyers particularly hard. Drury noted that the average trade-in vehicle is now around five-and-a-half to six years old. Many shoppers last purchased a car in 2019 or 2020, when prices were significantly lower. “If you’re a customer with a trade-in and 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,” he remarked.
Monthly payments are also climbing, with the average new-car payment in October reaching $766, a 3.2% increase from last year. Although interest rates have eased slightly, with the average APR dropping from 7% to 6.9%, this remains significantly higher than the 4% to 5% rates many buyers experienced on previous loans.
Drury cautioned that buyers should be aware of the financial implications. “The average amount to be financed is approximately $43,000; over a 72-month term, you’re looking at about $9,500 in interest alone,” he explained. “So you’re not even paying for the car at that point; that’s a privilege to borrow.”
Dealerships are responding to the crisis by offering more discounts compared to earlier in the pandemic. Average incentives rose to $2,240 in October, slightly down from a peak of $2,262 in June. “For dealerships, they are resorting back to providing discounts. They are getting money from automakers to put cash on the hood,” Drury noted.
Despite these incentives, vehicles remain on dealer lots for about 60 days, which is acceptable by industry standards but longer than many dealers prefer as they strive to maintain inventory flow. As prices and borrowing costs remain elevated, analysts warn that affordability challenges will likely persist for buyers as they head into 2024.
The implications of these rising costs are significant for consumers. With prices escalating and affordability waning, many potential buyers may be forced to reconsider their plans. As this situation develops, it will be crucial for consumers to stay informed and prepared for ongoing changes in the automotive market.
