Consumers hoping for deals on new cars are mostly out of luck over Labor Day weekend, but there's some good news: The market for used vehicles is finally becoming more affordable.
A report released Wednesday from the automotive research firm Edmunds found that Americans who have put off purchasing a used car in the recent past due to soaring prices now have a better chance of paying a little less.
The average transaction price for 3-year-old vehicles was $31,302 in July, a 4.6% decrease from their height of $32,828 in January. Previous data indicates that average prices for all used cars have fallen for four months in a row. Edmunds says this is a trend consumers can expect to continue into the holiday weekend and beyond.
"Although these price drops are not earth-shattering, they should be a welcome reprieve for consumers compared to the continued higher cost of new car purchases or leases,” Jessica Caldwell, Edmunds' executive director of insights, said in a new release. "Car shoppers can't expect to find anything close to the doorbuster bargains of pre-pandemic Labor Day sales, but they can at least look forward to used car prices softening across the board heading into the holiday weekend."
That being said, much like last Labor Day, this year's holiday weekend will be a rough time to try to score true deals on cars, particularly for shoppers looking to buy new.
New car prices still on the rise
Even as the used car market seem to be past its peak, new car prices are reaching all-new record highs.
A recent report from the consumer research firm J.D. Power and the auto market intelligence agency LMC Automotive estimated that the average retail price of a new car sold in August was $46,259 — an 11.5% increase from a year ago and the highest on record.
Other estimates using different data say that car buyers have been paying even higher prices. According to the most recent data from Kelley Blue Book, the average new car purchased in July sold for $48,182 — also a record high.
Supply and demand issues are at the heart of the surge in new car prices. Thomas King, president of the data and analytics division of J.D. Power, said that overall auto sales are down because dealerships simply do not have enough cars to sell. As a result, buyers have fewer choices and auto dealerships are able to charge top dollar for the cars they do have available for sale.
“The lack of inventory, coupled with strong demand, continues to allow manufacturers to walk back discounts,” said King.
New car retailers are on target to walk away with a record-high profit of $4,976 per vehicle lately. Rising interest rates, according to King, have also pushed monthly loan payments to all-time highs. After surpassing $700 in July, the average monthly finance payment for a new car reached $716, an increase of $78 (12.2%) compared to last August.
The main takeaway is that is that it continues to be a very difficult (and expensive) time to buy a car — even during periods that have traditionally been known for great promotional deals.
"Shoppers waiting for Labor Day sales events with substantial discounts on outgoing model-year vehicles will be frustrated by the lack of markdowns and choice of vehicles," said King. "However, for the time being, there are plenty of new-vehicle buyers willing to pay higher prices and be less selective.”