It seems like there’s finally some good news on the horizon for potential car buyers. The latest car market data indicates a promising downward trend in new car prices. Let’s dig into what’s happening and why it might be the perfect time to consider that new car purchase.
Relief… To An Extent
New data from Cox Automotive confirms that new car prices are dropping this spring, a trend that’s likely to continue into summer. For the first time in nearly two years, new-vehicle average transaction prices have dipped to their lowest, standing at $47,218 in March. This is down 1% from last March and a substantial 5.4% from the market peak in December 2022. It seems like the relentless price surge is taking a breather, giving buyers a much-needed respite.
Contributing Factors
Several factors are driving falling car prices. A significant recovery in new-vehicle supply has bolstered sales results. Inventory levels at the start of March were about 2.7 million units, showing a 52% increase year over year. More cars on lots mean more competitive pricing and better deals for consumers.
Incentives are also playing a big role. The average incentive spend from manufacturers increased 11% to $3,121, reaching the highest level since May 2021. With incentives accounting for 6.6% of the average selling price, it’s clear manufacturers are keen to move cars off lots.
Take a look at the best offers this month to see just how motivated OEMs are to sell
Interest Rates Ruin Affordability
Interestingly, even with slightly lower prices, affordability remains a hurdle due to historically high interest rates. The typical new vehicle loan interest rate now sits at 10.47%. Surprisingly, the average monthly payment is down by 1.2% to $744. That’s still up 40% from 2019, when the average monthly car payment was $533.
When you combine car loan interest rates with the modern era’s high MSRPs, the result is massive interest payments. At today’s average APR of 10.47% and an average selling price of $47,218, a 72-month loan would result in about $15,000 in interest over the 6-year loan term.
How can car buyers avoid interest charges? Here are a few foolproof ways to lower your interest payments.
- Larger down payments
- Take advantage of APR offers
- Keep your credit score in top shape
- Avoid longer loan terms – stick to 60 months or less
- Buying used? Compare rates from trustworthy credit unions
Too Many Luxury Cars, Too Few Budget Models
Automakers always aim to make more money, even if that means alienating some of their customer base. In recent years, this has meant abandoning low-margin affordable models, and replacing them with luxury cars and trucks that are more profitable.Â
For example, Nissan is discontinuing the Altima next year, yet continues to push $60,000 EVs that are selling poorly.
The shift towards luxury vehicles and higher-priced models complicates car buying for the average consumer. According to Cox Automotive, out of approximately 275 new-vehicle models available in the U.S., only eight had average transaction prices below $25,000, and only two were under $20,000—namely, the discontinued Kia Rio and Mitsubishi Mirage. Contrast this with March 2021, when over 20 vehicles routinely transacted below $25,000.
Additionally, the number of vehicles transacting at prices over $100,000 has increased significantly, with 30 different models in this bracket last month alone.
Is It a Good Time to Buy a Car?
With prices down, incentives up, and a decent dip in monthly payments, this could be a strategic time to consider a purchase, especially if you’ve been on the fence. Our team of experts is confident that this summer will be a better time to buy, if you’re patient. And if you can wait even longer, year-end deals are always the best.
With interest rates still high, insurance premiums climbing, and selling prices averaging over $47,000, it’s crucial to calculate your finances carefully. Remember, it’s a lot more difficult to find a new car for under $25,000 than in years past. Budget for ALL expenses that come with a new or used vehicle, from payments to fuel, maintenance, and insurance.
Dive deeper into real-time market data with CarEdge Insights and consider using our free car buying cheat sheets to navigate these changing tides.
Stay tuned to CarEdge for the latest in car buying tips and market trends. We’re here to keep you ahead of the curve!
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