When demand exceeds supply for any product, sellers have the upper hand. New car incentives dropped even further in the summer of 2022. What does fewer incentives mean for car buyers today? This is what the latest data reveals.
New Car Incentives Down 50% in 12 Months
The pandemic really put a wrench in the typical ebbs and flows of the automotive industry. Gone are the days of gradual change. Following an unprecedented drop in car sales as COVID took hold in 2020, record demand for cars far outpaced supply in 2021 and into 2022. Today, the lingering semiconductor chip shortage continues to greatly reduce new vehicle inventory. Any time there’s a shortage of new cars, used car prices rise too. Will buying a car ever get cheaper? Well, it hasn’t yet. Here’s the latest auto manufacturer incentive data from the analysts at TrueCar:
|Q2 2022*||Q1 2022||QoQ change||Q2 2021||YoY change|
As you can see, new car incentives are at a 10-year low. In the second quarter of 2022, incentives averaged $1,228 industry-wide. That’s a 59% drop year-over-year.
Incentives Won’t Return As Long As Days’ Supply Remains Low
The latest new car inventory numbers are in, and the update brings a mixed bag of news. Overall new car inventory is up, but not nearly to the extent that is required to return normalcy to car sales. Most automakers are seeing incremental improvements.
Automakers with the Lowest Inventory
- Subaru with 4 days’ supply (up from 3 days in June)
- Mazda with 6 days’ supply (up from 4 days in June)
- Hyundai with 7 days’ supply (down from 8 days in June)
- Kia with 10 days’ supply (holding steady since June)
Automakers with the Most Inventory
- Ford with 51 days’ supply (up from 37 days in June)
- Lincoln with 40 days’ supply (up from 28 days in June)
- Volvo with 26 days’ supply (some models are extremely limited)
- Lexus with 24 days’ supply (up from 23 days in June)
In January of 2020, the industry’s average was 82 days’ supply. By early 2021, that figure had fallen to 66, but it would soon plummet as the chip shortage lasted longer than most expected. In July of 2022, new car inventory is slim with just 21 days’ supply.
Until more cars are sitting on dealer lots, there simply won’t be any reason for manufacturers to offer more new car incentives to buyers.
Lack of Incentives Is Contributing to Record New Car Transaction Prices
You’re probably not surprised to hear that a new car costs more than ever before. The average transaction price has hovered around $45,000 for much of the past year. Two years ago, it was $38,000. With inflation AND supply chain bottlenecks, it will be a while before prices stabilize.
Monthly payments are on the rise, too. How much is too much? $500 a month? $750 a month? Maybe even a $1,000 car payment? Right now, the average monthly car payment is $712 a month. Five years ago, it surpassed $500/month for the first time. There’s a worrying trend taking hold today, and it’s one that risks spiraling out of control. A new Edmunds survey finds that 12% of car buyers are paying more than $1,000 each month for their car payment. Yes, a new car now costs as much as a home mortgage for those who choose to spend big.
How Does the Loss of Incentives Change the Car Buying Process?
Other than higher price tags, here are some considerations if you’re in the market for a new car:
- Most vehicle purchases are now above MSRP. However, this does NOT mean you must pay the premium – deals are still out there for those who do their homework. Nevertheless, 82% of car buyers paid over MSRP in early 2022.
- Direct-to-consumer auto sales bring advantages. Eighty percent of Tesla buyers cite the no-haggle online buying process as a major factor in their decision to buy. Other electric vehicle automakers are selling direct-to-consumer without markups, but also without incentives. These include Rivian, Lucid, Polestar and Fisker.
- More car buyers are placing factory orders… and waiting several months for delivery. If you’re looking for a special edition in a specific trim and paint color, chances are you’ll have to place a custom order and wait in line. If you’re more flexible, your chances of getting what you want, with or without incentives, are much higher.
- Used cars are expensive too. With the lower supply of new cars, used cars are selling at a premium in 2022. We’ve been tracking used car prices throughout the ups and downs. Here’s where things stand today.
Check back for the latest new car incentives. We’ll be updating this page as new numbers come in. Remember, you can still find a deal out there, but it will take a bit more work on your part. The CarEdge team is here to help you every step of the way. As Ray always says, knowledge is power, and CarEdge’s auto experts empower car buyers every day with the know-how that can save thousands of dollars.