Quick Facts About the Car Buying and Selling Marketplace
The news is mostly good for car shoppers, new and used, this month. But you might want to wait a little longer if you don’t need a car fast. But you probably know that. Odds are good that you’re waiting out the election, anyway, surveys tell us.
Financial conditions often improve slowly.
Car shoppers got the best news they’ve had in several years in September: The Federal Reserve finally cut interest rates, making it easier for Americans to borrow money. A month later, the ripples from that decision have just begun to affect the car market. Waiting longer might help you see more of their effects.
We’ll walk you through what to expect while buying or selling a new or used car or trading one in. Many car shoppers are in both markets simultaneously, with a vehicle to swap. They’re likely to find balanced offers on their trade-in this month. Read on to find out more.
What New Car Shoppers Can Expect
On average, new car buyers paid $48,397 in September. That’s a 0.4% decrease year over year and down about $250 since June. The decrease partly comes from buyers gravitating toward less expensive cars.
“One reason transaction prices are lower in 2024 is that many buyers are choosing smaller, less expensive vehicles,” noted Cox Automotive Senior Economist Charlie Chesbrough. “The subcompact and compact SUV segments are outperforming the market this year, and by no coincidence, they’re also two of the lowest-priced product segments in the market.”
But it’s also coming from incentives — those discounts manufacturers and dealers advertise to try to lure buyers into showrooms. Manufacturer incentive spending rose from 4.8% of the average transaction price a year ago to 7.3% in September.
There’s still room for incentive spending to grow. It often totaled 10% before the COVID-19 pandemic upset the way the auto market tends to work. But incentives are on the rise at some sales lots.
Why only at some car lots? Because some brands have an inventory problem.
The chart above explains it best. Car dealers traditionally aim to keep about 60 days’ worth of new cars in stock, with another 15 days’ worth on order. Too few, and they risk not having a car that appeals to you in easy reach. Too many, and they’re spending money to keep unsold cars on the lot.
RELATED: When Will New Car Prices Drop?
With an average of 81 days’ supply, many brands are quite comfortable. A few are actually short of cars — particularly Toyota and its Lexus luxury division.
Others, though, are well under or over it. Stellantis — the parent company of Alfa Romeo, Chrysler, Dodge, Jeep, and Ram — has a startling problem with almost all of its brands being overstocked.
The difference shows up at the negotiating table. If you’re shopping for a Toyota this month, you may have trouble finding the one you want and shouldn’t expect a discount. If you’re shopping for a Ram or a Lincoln, it should be easy to find the right one at a discounted price.
Dealers, we should note, will be happy to see you at all this month. A recent survey finds dealers pessimistic, believing many Americans will wait on major financial decisions until they know the outcome of a tense Presidential election. If you’re sure you do want to shop for a new car right now, you might benefit from being one of the few willing to shop.
It’s not a bad idea to be one of them. We measure affordability by how long it would take the average earner to pay off the average new car. That number was essentially flat last month but hasn’t been this good in more than three years.
We’d also caution shoppers to keep insurance costs in mind. While new vehicle prices are coming down, car insurance premiums spiked. Car insurance prices have grown so high in the last year that we now encourage shoppers to get insurance quotes on any car they’re considering before they put a dollar down. Insurance costs might make you consider a different vehicle.
The Big Interest Rate Cut Will Show Up Slowly
Prices are all cash buyers need to worry about. But few of us are cash buyers. Most Americans borrow money to buy a new car.
We have good news for those who finance car loans. Car shoppers got long-awaited good news in mid-September as the Federal Reserve cut interest rates for the first time in more than four years.
The Federal Reserve, commonly called “the Fed,” sets the interest rate banks use when they lend each other money. That Fed rate governs rates for every other kind of loan, including car loans. It’s finally on the way down, which should ripple through the economy over the next few months.
That cut takes time to work its way down to borrowers.
Jonathan Smoke, Chief Economist for Kelley Blue Book parent company, Cox Automotive, explains, “The Fed does not directly control the rates consumers see, and auto loan rates may end up being the slowest to move.” Auto loan rates may take “several weeks or even months” to respond to the Fed cut, he told us in September.
But the results are beginning to show. It’s easier to qualify for a car loan in September after five months of tightening lending standards. That trend will likely continue for a few months. The Fed’s cut was 50 basis points. The average car loan rate declined in September by just 15. It has room to slide further.
RELATED: The Fed Has Cut Rates. Here’s How it Could Affect Auto Loans
What Used Car Shoppers Can Expect
Used car prices rose modestly in September. The average car was listed for $25,361 last month — up 0.7% from the month before but still 5% lower than a year ago.
That increase came not from dealers raising prices but from shoppers buying newer used cars. September saw an uptick in sales of used cars under 2 years old. We expect small ticks up and down but not major disruptions to the used market for the rest of the year.
We predict retail used car prices by watching the prices dealers pay at auction for used cars they later sell. A trend in wholesale prices tends to become a trend in retail prices after about six to eight weeks.
Over the last few months, they’ve risen slightly, then fallen slightly. The prices chalked on windshields at the local used car lot are likely to do the same.
The nationwide used car supply will likely remain thin for years. Pandemic-era disruptions meant automakers built about 8 million fewer cars than they otherwise would have in 2021 and 2022. That’s 8 million cars that will never reach the used market, keeping supplies low for a long time.
Shoppers may have particular problems finding older, higher-mileage used cars priced under $15,000. Used cars below $15,000 continue to show low availability, with only 33 days’ supply.
Ford, Chevrolet, Toyota, Honda, and Nissan were the top-selling brands, accounting for 51% of all used vehicles sold.
Automakers Are Building More Expensive Cars
Though short-term trends may push new car prices down, automakers are focusing efforts on building more premium cars. The era of the inexpensive car is disappearing. A recent analysis finds that sales of cars priced at $25,000 or less have fallen by 78% in just five years. Five years ago, automakers offered 36 new models in that price range. Last year, that number was just 10. Automakers have announced plans to cancel most of those ten.
Meanwhile, those priced at $60,000 or higher have grown by 163% during the same period.
Smoke explains that last year’s Federal Reserve interest rate hikes kept some shoppers from buying cars. “This trend induces automakers to focus on profitable products for consumers who can afford to buy, which keeps less affluent consumers out of the new vehicle market altogether and limits what is available and possible in the used market for years to come,” Smoke cautions.
Dealers are pushing back, telling automakers they need more affordable cars to sell. But correcting the problem will take time. You’ll likely find affordable cars in short supply on many sales lots.
Older, Less Expensive Cars Harder to Find
If you hope to find an older vehicle and your budget is less than $15,000, these cars remain in short supply. More would-be new car shoppers started buying up the available used vehicles, drawing down the inventory. Plus, Americans are holding onto their cars longer than ever. The average vehicle on American roads is now 12.6 years old. Automakers also produced fewer cars for several years after the 2008 recession, leaving fewer higher-mileage, older used vehicles available to sell.
The most accessible used cars are priced between $15,000 and $30,000.
How to Buy a Car Right Now
If you want a new or used vehicle, shoppers are still getting sticker shock. New car prices remain about $11,000 higher than five years ago, before the COVID-19 pandemic. That’s when the average transaction price for new vehicles was around $37,590. But take stock that your next car will likely last longer and help you drive safer than ever with all the technological advances and offerings.
RELATED: Buying Older, Used Cars in 2024
Vehicle quality studies repeatedly show that today’s new cars suffer fewer problems than those from just a few years earlier. Buyers of higher-priced used cars will likely see the vehicle driving on the road even longer. The same goes for those buying new ones.
With most automakers now building such durable cars, they compete by adding more high-tech features. Features like adaptive cruise control and Apple CarPlay are now more common than ever on entry-level vehicles. Read on to see our tips on buying a car below.
How to Leverage Incentives to Buy a New Car
In September, car incentives comprised 7.3% of the average deal, or $3,522, up from 7.2% in August. To take advantage of incentives, read about our monthly best car deals to find dealer or manufacturer incentives, including cash back and lower interest rates for financing your next vehicle.
RELATED: How to Buy a New Car in 10 Steps
Selling a Car Right Now
Few of us can sell a car without needing to buy a replacement. But, if that’s you, what are you waiting for? You could get more for your vehicle if it’s in high demand, and that’s excellent news. The best way to get the most money for your used car is to sell it privately. But if you don’t want the hassle, there is still an opportunity to sell to a dealership.
PRO TIP: If selling a car, consider selling it peer-to-peer using Kelley Blue Book’s Private Seller Exchange marketplace. It’s a low-cost method that helps consumers earn more for their vehicle than selling to a dealership.
Trading in a Car Now
The ongoing shortage of used cars will be with us for years. As a result, you’ll likely still see respectable offers for your used car this month.
“Fewer new vehicles produced in 2021 meant lower leasing, which equals fewer lease maturities starting this year,” said Jeremy Robb, senior director of Economic and Industry Insights at Cox Automotive. After being low for the last two years, used-vehicle supply is expected to improve later in 2024 — but that will be without much help from off-lease supply.”
Searching for a decent price for your trade-in is still a good idea by shopping it around. Each dealership tries to keep a balance of vehicles on its lot. Sometimes, the one you want to buy from doesn’t need your trade-in desperately, but a competitor does.
Research your vehicle’s Kelley Blue Book value, then call several local dealerships to see what they’ll offer you for it. Or try our Instant Cash Offer tool, which brings the deal to you from various dealerships without obligation. You can choose your preferred offer or use it to negotiate with others.
Looking Ahead
According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, new cars are now more affordable than they’ve been at any point in more than three years. But two trends complicate the picture.
One is the Federal Reserve rate cut. Our economists tell us it will reach car shoppers slowly, perhaps as late as December. Borrowing to buy a new car may be easier if you can wait until winter.
But those automakers with overstocked lots know they have a problem and are working to correct it. Stellantis has announced plans to pause construction of some new cars while its dealers sell down the backlog. If you’re interested in one of their overstocked models, you may want to shop soon while dealers are still oversupplied and looking to negotiate.
RELATED: 10 Best Used Car Deals
Tips for Buying a Vehicle Right Now
If you shop right now, we recommend a few strategies to help you find the right new or used car that fits your budget.
- Expand your search. Widen your search to a broader geographic area.
- Stay patient. Call dealerships early and often to see what’s coming off the trucks for those harder-to-find vehicles. Leave a refundable deposit if you want first dibs.
- Buy a less expensive model. With higher car loan interest rates, consider buying a cheaper vehicle model instead of a more expensive one in the lineup you’re considering. Understand how much you can afford.
- Understand the timing. Be prepared to compare deals, and know it involves calling or visiting several dealerships as you look for the right fit.
- Weigh your options. Don’t just look for a car; search for the best interest rates from banks or credit unions. Also, shop for your insurance rates ahead of the deal to know how much the higher auto insurance costs will cost for your desired vehicle. Then, weigh all your options, including financing incentives and deals at the dealership, if that’s where you buy your next vehicle. Also, you may find the price differences of some newer model used vehicles are almost the same as new cars. Just keep all your options open during your search.
- Don’t pay dealer markups. If you see a markup, sometimes called a market adjustment, on your final invoice, ask that it be removed or shop at another dealership.
- Question all add-ons. If your sales summary includes entries like “window tint” or “fabric protection” and other add-ons you didn’t request, ask for those line items to be removed from your invoice. Many dealers tack on these extras to make quick profits.
It may make sense to keep your existing car for another year. If you must buy, be prepared to take excellent care of your next car to keep it running for a long time.
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Editor’s Note: This article has been updated since it was initially published.