This rulebook has been discarded within the last two years. Buyers have become accustomed to paying more than MSRP, or the manufacturer’s suggested retail price. They have seen prices rise steadily, with no cyclical declines. The end of established models leaves many car buyers scratching their heads. The question we get the most is, “When will new car prices drop?”
The answer is more than a little complicated. In some cases, prices for new vehicles have already started to fall. In others, they may not decline in the foreseeable future. The new world of car buying requires an open mind and new skills.
Brian Finkelmeyer of Cox Automotive likens buying a new vehicle to this quote from science fiction writer William Gibson.
“The future is already here. It’s just not evenly distributed.
Finkelmeyer is the senior director of new vehicle solutions at Cox Automotive, the parent company of Kelley Blue Book.
In this story, we’ll explain how to navigate new car buying and dealer pricing patterns, so if you’re in the market to buy a vehicle, you’ll be equipped with the best information we know from our experts. We’ll also dig deeper to answer the question about falling car prices, though the answer remains unclear.
What determines car prices
Car prices have reached a average transaction price $48,281 in October, up 3.8% from the same month a year earlier. According to Finkelmeyer, here are the typical factors affecting new car prices:
- Inventory Availability
- Manufacturer incentives
- Dealer discounts
- Trade-in value
However, all four have experienced major disruptions in the past two years.
Some brands have stocks, some don’t.
In recent years, inventories have fallen to historic lows, primarily due to a global shortage of microchips. Without enough crucial microchips, which control everything from engine timing to navigation systems, automakers haven’t been able to build cars as quickly as they’d like.
Automakers measure their inventory of new cars for sale by a metric they call “days of inventory” – how long it would take them to sell new cars at the current sales rate if they stopped building new ones. new. As recently as 2019, most of them were aiming to keep six weeks (or 42 days) or more in stock. In 2022, many automakers’ inventory has fallen to just seven days.
Some automakers have recovered, others have not.
“Some brands, such as Buick, Jeep, and Ram, have a 75 to 85 day supply,” says Finkelmeyer. Others sit well below par. “Kia has an average supply of 19 days for the brand.”
Incentives now differ from brand to brand, batch to batch
When automakers regularly accumulated an oversupply of cars, they discounted them to remove vehicles from dealership lots.
Now that some have no more cars to sell, they are barely discounting. Others still need car discounts to move the metal.
For example, the three best-selling vehicles in America are the three full-size domestic vehicles trucks – the Chevy Silverado, Ford F-150and Ram 1500. Chevrolet and Ford dealerships, according to Finkelmeyer, currently have an average of 40 to 60 days of vehicle supply. Ram dealerships often stock double that.
According to Finkelmeyer, estimated incentives on a Ram 1500 pickup were $4,426, more than double the $1,933 on the Chevy Silverado and quadruple the $1,059 on the Ford F-150 in September.
Traditionally, dealers often add their own rebate offers to manufacturer incentives. You’ll see them less often now.
The more valuable your trade, the more disappointing the offer
Trade-in value is the last and strangest price-determining factor in today’s market.
“Used car inventories across the country are currently bloated with expensive used goods priced above $35,000,” Finkelmeyer says.
Automakers cut production for several years after the 2008 recession. That leaves dealers with older, higher-mileage cars selling for less than $10,000 particularly hard to come by now.
Meanwhile, high gas prices throughout 2022 are prompting some buyers to dump new, less fuel-efficient truck and SUV models, even if they’re relatively new.
Dealerships price your trade-in based in part on what they need in stock. They are more likely to offer a good deal on a car that fewer people are looking for right now. Car dealerships are overstocked with relatively expensive used cars.
“Consumers who trade in a 2018 Honda Civic will be much more satisfied with the trade appraisal than those who trade in a 2021 Jeep Grand Cherokee,” says Finkelmeyer.
New skills for a new market
So when will vehicle prices drop?
For some brands and dealers, prices have started to come down a bit.
“For some volume brands like Honda, Kia and Toyota, new inventory remains very tight in the 20-30 day supply range, and deals are nearly impossible to come by,” Finkelmeyer says.
With other brands, buyers have to be prepared to hunt. For example, Chevrolet and Ford currently have 40-60 day supply for certain vehicles. It’s almost the historical norm.
Yet other automakers face a glut of new vehicles for sale. “If consumers want the best selection and the best deals, they should go to the local Jeep or Ram dealership,” says Finkelmeyer. These dealers “offer 0% for 48 months or 2.9% for 72 months on select models.”
Buyers should also be prepared to shop their exchange around. It’s a bit trickier to pull off, but it might make sense to sell your old car to one dealership and buy your new car to another if the numbers work better. Use the Kelley Blue Book Instant Money Offer tool to shop for your trade-in at dealerships near you. When you let the offers come to you without any obligation, you can choose the trade-in offer that best suits your situation.
What to expect: Looking ahead
But what if you desperately want a popular car with low supply? Then you may need to be patient.
“Ultimately, we believe inventory and incentive levels will increase going forward,” Finkelmeyer says. The Federal Reserve’s recent measures to contain inflation make large purchases more difficult for everyone. This will slow down sales.
The shortage of microchips will probably resolve itself in 2023. This will increase the supply.
These trends could drive down the price of even the most popular cars. But experts can’t put a date on when that will happen. Instead, says Finkelmeyer, buyers need to be flexible.
It is already possible to find a low price on a new car. It may not be the car you thought you were buying. Or you may need to buy the car in a small town outside of the big city where the competition isn’t as tough.