PEDAL TO THE METAL
Buyers are facing a ‘new normal’ with car prices. What that means for shoppers
Spring and summer may be good times to buy a car as manufacturers overcome pandemic-related supply interruptions, but remember, good is relative. Yes, prices have come down from their pandemic peaks, but if you haven’t walked into a dealership since early 2020, the prices you see will be “eye-popping,” said Pat Ryan, chief executive of CoPilot, an AI-assisted car-shopping app.
New car prices are up 29% since March 2020 and used car prices up 34%, both outpacing overall inflation of 23%, he said.
If you can accept that higher car prices are simply “the new normal,” Ryan maintains that the next several months will be prime buying season, with new cars providing the best value if you can afford it.
“Used (cars) can only go down so far because during the pandemic, we produced 10 million less cars than we normally would,” Ryan said. On the other hand, automakers are churning out more cars as supply chains normalize.
Why can new cars be a better value?
If you can afford to pay more for a new car, they could offer better value because manufacturers are producing more cars than people want so they’re offering more incentives, Ryan said.
As an example, he said, you would expect to pay $0.63 on the dollar of the original sticker price for a used car. Now that’s probably about $0.80.
“So, the price is very high versus historically, so why not get a new one with more features,” he said. “You’re only getting a 20% discount from what that used car (cost when it) was new, which is not a great deal.”
Additionally, used cars now are older and have more miles than they used to. Those less than $20,000 on average have more than 22,000 more miles than before the pandemic, while cars less than $30,000 averaged more than 11,000 more miles, Cars.com said.
A new car might drop down to $0.97 on the dollar, but you might also pay a lower interest rate, he said.
“You can usually get a longer-term payment on a new car, so from a budgeting standpoint, you could have the same payment on a new versus used vehicle,” said Rebecca Lindland, senior director of industry data at car shopping site Cars.com. “But we encourage people to shop by MSRP (manufacturer’s suggested retail price) so you can figure out what you’re paying for the car (rather) than strictly go by payment.”
She encourages shoppers to use tools on comparison sites such as Cars.com.
High prices are the ‘new normal’
Car prices have eased, but no one should expect them ever to return anywhere close to pre-pandemic levels, car experts say.
“These prices are in a new normal,” Lindland said. “Part of it is (what) we expect from a new car these days. We expect a new car to have the latest technology, to have certain features, and all of those features cost money.”
New car prices fell below $49,000 in February for the first time in more than a year and below the August 2023 high of $50,253, thanks to more dealer discounts and automaker incentives, according to Cars.com. But that’s still 29% higher than the average pre-pandemic price of about $38,000 in February 2020.
Used car prices averaged $31,556 in March, down from a peak of $32,889 in April 2022 but still 33% more than March 2020’s $23,691.
How is used car inventory?
As of Feb. 2, dealers nationwide had 80 days of newvehicle supply, the highest since June 2020, according to Cox Automotive. Used cars had 44 days of supply, which was nearly flat from a year ago, Cox said.
Even better for shoppers is that lower-priced vehicles in both categories have risen. About 30% of used cars are priced less than $20,000, up from about 12% during the pandemic but still below 52% before COVID-19 struck, Ryan said. New vehicles less than $30,000 now hover around 12% of all cars, up from 8% during the pandemic but lower than the 38% available before COVID-19, he said. Even if inventories are higher, competition may be stiff. For example, more than half of consumers plan to pay less than $30,000 for a new car, a Cars.com survey showed.
What about EVs?
“New EVs are still more expensive than the average car, but there’s a lot more supply of used EVs, so consumers now have opportunity to look at an EV,” Lindland said. “They have a chance to test drive, touch it, feel it, play with it, whereas before, you’d raise your hand and put in a reservation with nowhere to testdrive them.”
The government tax credit for EV purchases, though, is unlikely to move the affordability needle much in favor of EVs.
The tighter restrictions this year make the pool of eligible models smaller, and the income requirement to qualify is very low, she said.
To qualify, a buyer’s income can’t exceed $150,000.