Car Shoppers Can Expect 'More Discounting and Better Prices' in the Second Half of the Year
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Get ready for good deals to return to the car dealership: The new vehicle market will likely improve for car shoppers in the second half of the year as rising inventory levels lead to lower prices.
Experts at Cox Automotive expect “more discounting and better prices” as the year goes on because automakers will likely need to reduce their margins to avoid building up too much inventory, according to a new forecast.
The supply of new vehicles in the U.S. has been increasing since the fall of 2021, and the total inventory is nearing 3 million units, up 55% from a year earlier. For comparison, the average was 3.4 million units over the six months leading up to the pandemic.
This shift means that car shopping is becoming "normal" again. In the current market, you may be able to negotiate for a discount off the sticker price, and there's a good chance you'll be able to take advantage of an incentive deal like a cash back rebate or subsidized financing.
Discounts and incentives improve for new car shoppers
The average incentive amount is now up to 7% of the transaction price after hitting a low of 2% in 2022. (At that time, it was considered a seller’s market and buyers were usually paying over MSRP, according to Cox Automotive.)
Things should only get better for car shoppers in the coming months. In the second half of this year, incentives could keep climbing closer to the 2019 level, which was just over 10%.
“The return of supply has brought the return of incentives and this is providing some relief to consumers, as high vehicle prices are now in retreat,” Charlie Chesbrough, senior economist at Cox Automotive, said on an industry call.
The average new car price is about $48,400, which is 3% lower than the peak of nearly $50,000 in December 2022.
However, prices are 20% higher compared to the winter of 2020. High auto loan rates rates are the other major barrier to affordability, and there hasn't been any meaningful improvement as the Federal Reserve is still waiting for further data that inflation is under control before cutting interest rates. While there's still a good chance of at least one rate cut in 2024, the outlook is unclear.
In the past year, lower prices and strong incentives have helped some car buyers overcome higher rates. Cox reports that the average monthly payment was $752 in May, down from $795 in December 2022. If prices and interest rates drop further, monthly payments will go even lower.
“With uncertainty around the economy and interest rate policies and the upcoming election, it seems very possible that vehicle buyers may pause on big purchases,” Chesbrough said. “With vehicle prices now weakening, waiting may be a wise strategy."