The current car market: New vs. used
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After disruption caused by the COVID-19 pandemic, the new and used car markets continue to improve, but one seems to be improving quicker.
New Vehicles
New vehicles have been recovering from the pandemic at a steady pace. Inventory and incentives have been rising while prices have remained constant. For the first time since the pandemic, inventory recently topped more than 3 million cars, or about an 84-day supply. This means it will take a dealership about 84 days to sell out of new vehicles at today’s sales pace if no new vehicles were introduced to the market.
This increase in inventory is a good sign if you are a consumer. As inventory increases, dealerships are more inclined to offer sales incentives to get those cars off the lot. According to Kelley Blue Book (KBB), incentives comprised 7.7% of the average new car sale in October. This is the highest amount in over three years! In addition, qualified buyers with good credit can find low-interest rate offers. The number of car manufacturers offering 0% financing is also rising.
KBB data shows the average price of new cars has been steady in the short term. In October 2024, the average price for a new vehicle was $48,623. This is only 1.7% higher than October 2023, lower than the increase of the broader CPI! However, it’s about 27% higher than five years ago, pre-Covid. As with many items, the pace of inflation has slowed, but prices remain elevated.
Used Vehicles
The used car market is a slightly different story. Disruptions experienced during the pandemic continue to affect automakers. Inventory and incentives remain stagnant; however, prices have declined slightly.
The used car inventory is fairly tight right now, and that is not likely to change in the short term. Inventory is about a 45-day supply or almost half that of new cars! About 8 million fewer cars were built in 2021 and 2022, meaning 8 million “missing” cars will never reach the used car market. This will help keep supply low for an extended time. Americans are also driving their cars longer than ever, with the average vehicle on the road being around 12.6 years old.
The low supply of used cars means that incentives are hard to come by, as dealers are in no hurry to get rid of product. This has been a constant feature of the market over the past couple of years.
Currently, older cars with high mileage, priced under $15,000, are the most difficult used cars to find. There just aren’t many in the market. The best area to find a used car is those priced between $15,000 and $30,000.
According to Kelley Blue Book data, the average used car price in October was $25,499. This is -4% lower than October 2023. However, it’s about 21% higher than five years ago.
Summary
Consumers welcome the slowing of price increases in the car market, but prices seem unlikely to return to pre-COVID levels. Whether you choose to go with a new or used vehicle will mainly come down to your budget. If you can afford the higher price of a new car, you should spend more time shopping around to try and get the best price and incentive. If you choose the cheaper option of buying a used car, be prepared to pay the sticker price, as your negotiating power is not strong.
Austin Stagman, CIMA, is a Portfolio Manager with Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.bedelfinancial.com or email Austin at astagman@bedelfinancial.com.