The U.S. car market is expected to recover to pre-Covid levels by 2024. Jonathan Smoke, the chief economist at Cox Automotive, believes that 2024 will be the best year for consumers to buy new cars since the COVID pandemic, given the anticipated increase in the supply of new vehicles, decrease in transaction prices, and reduction in interest rates. In an interview with the Detroit Free Press, Smoke said, “With supply normalizing and the economy stabilizing to hit a soft landing and not turn into a recession, it leads to an environment that is the most normal we’ve encountered since 2019.”
He argued that there is a possibility of overcoming the record low new car supply in 2021 and most of 2022 due to parts shortages. Until now, transaction prices have been rising, and many car dealers have been selling vehicles at prices higher than the sticker price. Although supply improved in 2023, the average transaction price remained high.
According to Kelley Blue Book (KBB), the average transaction price for new cars in the U.S. in November 2023 was $48,247, up about 1% from October but down 1.5% from November 2022. November marked the third consecutive month that new car transaction prices fell year-on-year. The past three months were the only time in the past decade when the monthly average new car transaction price did not increase year-on-year.
Jonathan Smoke analyzed that used car inventory is still limited. According to Cox Automotive data, the average used car registration price at the beginning of December was $26,091, down from about $27,000 in December 2022.
However, despite price improvements, some analyses show that the affordability of new and used cars has been problematic due to the surge in interest rates in 2023. Jonathan pointed out that the average interest rate for new car loans in December was 9.5%, compared to 5.2% in December 2021. For used cars, the average rate is slightly over 14%, compared to 9.3% in December 2021.
Jonathan analyzed that the manufacturer’s suggested retail price (MSRP) of cars will continue to rise next year due to labor cost increases after the Detroit Big Three raised the base wage by 25% in a new contract with UAW. In addition, the price of automotive raw materials is also rising.
Despite this, he anticipates that consumers could purchase new cars at lower prices than this year. He predicted a bullish trend starting from spring. In the U.S., the traditional tax filing season is an essential time in the car market, and Jonathan argued that interest rates will drop at that time, and the prices of both new and used products will start to fall. He also predicted that more automakers would offer more significant new car incentives through price discounts.
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