business : Why Car Prices Are Finally Falling

Thursday 13 June 2024 10:45 PM

Nafeza 2 world - June 13, 2024 3:28 PM EDT

Two years ago, David Rosenberg’s dealership lots were virtually empty; cars would sell as soon as they arrived. Today, Rosenberg, president of DSR Motors, which has 12 dealerships across New England, says he’s offering up huge deals to get vehicles off the lots because he has so much inventory.

Rosenberg has been forced to offer big price cuts for brands like Stellantis (formerly Chrysler) and Nissan, as well as some Subaru models. “For some cars it’s a buyers market,” he says. “We’re taking off $25,000—crazy numbers.” 

Car prices aren’t just falling at Rosenberg’s lots. New vehicle prices in May were down nearly 1% from a year ago, representing the eighth month in a row that prices have dropped, according to estimates by Kelley Blue Book. 

One big reason dealers like Rosenberg have so much inventory compared to a year ago is pandemic-related. As automakers suspended production during COVID-19, shipping lanes became clogged, and semiconductors were in short supply. Dealers had a difficult time getting cars on their lots as a result. There were so few cars available in 2021 and 2022 that sellers could charge soaring prices to people desperate for a vehicle. (Including me.) Consumers, flush with cash from stimulus packages, competed over the limited number of cars available, driving up prices further.

Read More: How To Negotiate With Car Dealers.

This continued until the end of last year, Rosenberg says. Now, though, dealers have a lot more cars—so many that they are incentivized to sell them if they sit around too long. There were 2.89 million cars available at the beginning of June, the highest number since late 2020 and a 55% increase from a year ago, according to Cox Automotive’s vAuto Live Market View.

The relief for consumers represents a big shift from a year ago, when prices were still climbing. In May 2023, new vehicles cost 4.7% more than they did the previous year, according to government data. That same government data shows new car prices are down 0.8% from a year ago.

It’s not all good news for car buyers. Interest rates for car loans are roughly four percentage points higher than they were in April 2022, according to a recent report from the Bank of America Institute. The cost of car insurance is skyrocketing. Even if prices drop further, the costs of borrowing and insurance could make consumers’ monthly payments higher than they have been. A recent Bank of America / Market Landscape Insights study found that 45% of respondents said they had trouble paying vehicle loan payments and vehicle maintenance costs.

“Even though prices are down, you may not be feeling as much relief as you’d hoped for,” says Kevin Roberts, CarGurus’ director of industry insights and analytics. 

There are some options from people who want to get a good deal. Many dealers still have 2023 models on their lots, and 2025 models are going to roll out soon, so dealers will likely offer specials, says Roberts. Used-car prices have dropped 9.3% from a year ago, according to government data.

Read More: Why We're Spending So Much Money.

Even electric cars are getting more affordable, thanks to increased competition, faster production, and government tax credits. Research from CarGurus suggests that prices on some used EV models are a whopping 36% lower than they were a year ago. 

Of course, the cost of both new and used cars is still higher than it was before the pandemic. That’s probably not going to change anytime soon. Wages are higher. Parts are more expensive. Today, everything costs more.  

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