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After a year of supply shortages and rising borrowing costs, 2024 is shaping up to be a better time to buy a car.
The average transaction price of a new car in the United States last month was $47,244, down 2.2% from February 2023. It is also down 5.4% from the market peak in December 2022. according to Kelley Blue Book.
But new cars are generally still expensive; prices are nearly 14% higher than in February 2021.
Experts predict that incentives such as rebates and discounts are slowly making a comeback as most automakers build inventory, but prices may never return to pre-pandemic levels.
“The bad news is, we’re never going back to the old normal. The good news is, within the scope of the new normal, we’re already out of the peak,” said Pat Ryan, founder and CEO of CoPilot, an automotive-shopping app.
“We’re now taking this kind of structural action on both new and used car prices, and it’s surprising consumers,” he said.
Why are new cars getting more expensive?
Ryan said basic components built into new cars, such as technology, and high labor costs keep prices high.
“Fender benders are no longer a trivial matter,” he said. “If you hit someone today with your new car’s fender, the plastic fender you need to replace might cost $2,000 or $3,000 instead of $300 because you have…all these crash protection devices and electronics. “
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That’s why it’s so hard to find new models under $20,000 in the car market. Joseph Yoon, a consumer insights analyst at automotive website Edmunds, previously told CNBC that this is also a response to consumers preferring cars with features such as automatic climate control, car playback screens and parking sensors.
Shui On said that because of these improvements, new car prices “will never fall back to their original levels.”
Used car shortage ‘sets floor’ on depreciation
The average used car transaction price dropped to $28,371 in the fourth quarter of 2023, a decrease of 4.4% from $29,690 in the same period last year. according to Edmunds data.
Yin explained that “there was no depreciation” on used cars in the past few years due to high demand.
Used car prices are likely to remain “structurally higher” as new car production is reduced due to shutdowns and chip shortages during the epidemic. Ryan said this meant more drivers would stick with their previous cars, resulting in fewer used cars on the market.
“The shortage of used cars limits the depreciation of used cars because… without used car factories, you can’t make more used cars,” he said.
However, newer used cars or used cars that are three years old or less are depreciating because they are directly related to the inventory recovery in the new car market, Yin said.
“A three-year-old car has some resemblance to a new car,” he said.
Older cars, or those between five and seven years old, still retain their pandemic-era value because of low supply, he said. High demand causes prices to rise as the number of available cars is smaller and older.
While prices remain generally high, drivers who need to replace their wheels may have a better chance this year, experts say.
When to buy a car in 2024
Ryan explained that incentives between April and July are expected to be most attractive in the new car market.
Car buying usually happens in the spring and summer because of the better weather.
“To do a test drive, you need to go outside and look at the car…it’s an outdoor activity,” said Brian Moody, executive editor of Kelley Blue Book.
Ivan Drury, director of insights at Edmunds, said that although interest rates remain high, the Fed is expected to cut interest rates this year, which may “give people more breathing room.” previously told CNBC.
“Last year it was bad. But this year at least it’s good,” he said.
Manufacturers have also increased incentives for some new vehicles. Moody’s said that because the deals don’t “cover all brands, or even all cars within a brand,” shoppers will have to look for them.
In terms of the used car market, where drivers can buy cars that are less than three years old, car dealers are more likely to be “more generous during the holidays,” Yin said.
“Typically, whether it’s new or used, dealers usually offer incentives during major holidays like Presidents’ Weekend,” he said.
He said the average transaction price for a one-year-old car fell to $38,720, down $6,763 from the peak in the third quarter of 2022 ($45,483), which was a “meaningful shift.”
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