Americans bought about 15.5 million cars last year. They’re on pace to buy 16 million this year, according to Kelley Blue Book parent company Cox Automotive.
Many would-be car shoppers stayed home through a stressful election season, says Cox Automotive senior economist Charlie Chesbrough. But, “with the U.S. election now in the rearview mirror, we may see vehicle sales finish the year in a strong position. With less uncertainty in the market, consumer confidence is moving higher, which will likely increase consumer willingness to buy a new vehicle.”
Affordability, Credit Access Improving
Chesbrough notes that affordability has improved. The average earner would now need to work 37.4 weeks to pay off the average new car — the lowest figure that measure has seen in more than three years.
Lenders are also approving more car loans, at lower rates, thanks to two recent cuts in the Federal Reserve’s benchmark interest rate.
Related: Is Now The Time to Buy, Sell, or Trade-in A Car?
Some Brands Overstocked
Some automakers, though not all, are overstocked with new cars to sell. That has many of them offering discounts. Incentives made up 7.7% of the average new car sale price last month – the highest total discount we’ve seen since the COVID-19 pandemic created supply chain problems that pushed new car prices higher.
The average car dealership ended October with an 85-day supply of new cars to sell. That’s higher than the 60 days they traditionally aim to keep.
That average, however, is made up of extremes. Seventeen brands had more than 100 days’ worth, topped off by Lincoln with 168. Toyota and its Lexus luxury brand had just 35.
December traditionally sees some of the most significant discounts of the year.
End of Year EV Sales Surge Likely
This year, electric vehicles (EVs) could see the biggest markdowns.
Chesbrough noted, “We may see an increase in EV and plug-in hybrid (PHEV) sales over the next few months as buyers move to take advantage of discounts that may disappear in 2025. There is concern that federal tax credits for EVs and PHEVs may be reduced or eliminated when the new administration takes office. As a result, EV sales may experience some tailwinds, leading to robust activity through the end of the year.”
Even if the EV tax credit takes effect, the number of cars that qualify for the credit typically shrinks every Jan. 1 as rules prohibiting Chinese-derived parts grow stricter.