Recent car manufacturing, sales and marketing trends have combined to create an environment where customers are in the driver's seat when it comes to making deals on their next new vehicle purchase.
Car sales have continued their climb over the last few months, according to J.D. Power and GlobalData. Prices are down while units moved are up both from April and from May of last year.
That's good news for consumers, who can expect to pay a transaction price similar to several years ago despite manufacturer suggested retail prices (MSRPs) and delivery fees rising over the same period.
Thomas King, president of the data and analytics division at J.D. Power explained that the results showing a small increase in dealer inventory from April and a huge increase from May last year is a mixed blessing.
"On the positive side, the total sales pace will exceed 16 million units for the first time this year. Also, discounts are similar to last month, despite May being a month in which discounts traditionally increase to take advantage of elevated shopping activity during the Memorial Day weekend. This is good news for manufacturer and retailer profitability," he said.
The industry is producing more vehicles than it sells, which traditionally results in discounts later in the year, once models have sat on dealership lots for a few months.
Average transaction prices are trending downward, reaching $45,033, according to J.D. Power. That's 2.3 percent lower than May 2023 and $4,900 less than an all-time high of $49,933 during the COVID-19 pandemic.
"The pricing story of the automotive industry in 2024 is a compelling economic case study. Year to date through May, average transaction prices have declined by nearly 3 percent compared to 2023. Such a decline is rare, with the last significant drop occurring during the Great Recession.
"In fact, transaction prices have been decreasing year over year for 10 of the past 11 months," Tony Salerno, managing director and practice leader of automotive, advisory and analytics at J.D. Power told Newsweek.
"To understand why, we need to understand how we got here. Following the Great Recession, transaction prices saw a steady climb, when the supply shortage shifted the landscape dramatically. Prices then surged at unprecedented rates. By 2022, transaction prices were nearly 21.0-percent higher than where the pre-supply shortage trajectory would have pegged them," he said.
This year trends have reversed, and prices are starting to decline. Higher inventories lead to greater discounts and in May, retail inventory reached around 1.8 million units, a small increase from April 2024 but a huge (52.7-percent) increase from May 2023. Incentives are now good for an average of 5.3 percent off an MSRP.
"While these discounts are significant, rising interest rates have somewhat offset them, but only slightly as the rate increases have flattened out. The average interest rate for new-vehicle loans is expected to be 7.1 percent, which translates to approximately $4 more per month on a 60-month loan for a vehicle priced at the May average of $45,000," Salerno said.
When Is the Best Time to Buy a New Car?
The end of the month and calendar year are traditionally the best time to buy a car. That’s when dealerships are working to hit targets and are more likely to offer steeper discounts. But, this tried-and-true method of getting a deal is well known. You might not be able to be as picky when it comes to color combinations or package options, or you could leave the dealer in the same car you drove there in.
If inventory levels continue to climb, manufacturers and dealers will most likely respond with higher incentives and discounts. Additionally, interest rates are expected to decrease, further aiding affordability.
The only factor slowing this momentum is trade-in values. When new vehicle values decline, so do used vehicle values. And almost half of new car purchases involve trading in a used one.
"Therefore, the decline in used-vehicle values is translating to lower trade-in equity for owners, now trending towards $7,866, which is down $1,438 from a year ago," said Salerno.
"Thus, the decision to buy now or wait until later in the year greatly depends on individual circumstances."
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
About the writer
Jake Lingeman is the Managing Editor for the Autos team at Newsweek. He has previously worked for Autoweek, The Detroit ... Read more
