Car and truck prices begin to fall from inflated highs

DETROIT — Prices for new and used vehicles have fallen slightly from record highs as more vehicles gradually become available at dealerships.

No one should expect prices to drop anywhere before the pandemic recession hit in early 2020. The rapid post-recession recovery has left automakers short of parts and vehicles to respond. on demand. Prices skyrocketed and have hardly budged since.

Prices for new and used vehicles remain 30% to 50% higher than they were when the pandemic hit. The average used car cost nearly $31,000 last month. The middle nine? $47,000. With higher prices and loan rates combining to push average monthly payments on a new vehicle above $700, millions of buyers have been shut out of the new vehicle market and are now limited to vehicles from opportunity.

High prices are generating substantial profits for most automakers despite sluggish sales. On Tuesday, for example, General Motors reported that its third-quarter net profit jumped more than 36%, thanks in part to sales of expensive pickup trucks and large SUVs.

Yet many vehicles are becoming slightly more affordable. The signs appeared for the first time a few weeks ago on the second-hand market of 40 million sales per year. As demand waned and inventories rose, prices fell from their spring highs.

CarMax said it sold nearly 15,000 fewer vehicles last quarter than a year ago. The CEO of the Richmond, Va.-based used-vehicle company pointed to inflation, rising borrowing rates and declining consumer confidence.

A “buyers’ strike” is how Morgan Stanley auto analyst Adam Joans called the drop in sales – a dynamic that usually predicts lower prices. And indeed, the average price of used vehicles in September was down 1% from its peak in May, according to

At AutoNation, the nation’s largest dealership chain, used vehicle sales and earnings per vehicle both fell last quarter. CEO Mike Manley noted that while vehicle supply remains low, used car prices are falling.

“Our analysis shows that we are coming out of the high values ​​that we have seen before,” Manley told analysts on Thursday.

Ivan Drury, knowledge manager at Edmunds, warned that it will take years for second-hand prices to fall near pre-pandemic levels. Since 2020, automakers haven’t leased as many cars, snuffing out a key source of recent used vehicles.

Similarly, rental companies have been unable to purchase many new vehicles. So ultimately they are selling fewer automobiles on the used market. This is set another source of vehicles. And because used cars don’t stay on dealer lots long, demand remains strong enough to support prices.

When auto prices first spiked two years ago, low-income buyers were squeezed out of the new-vehicle market. Eventually, many of them couldn’t even afford used cars. People with subprime credit scores (620 or lower) bought just 5% of new vehicles last month, down from nearly 9% before the pandemic. This indicated that many low-income households could no longer afford vehicles, said JD Power Vice President Tyson Jominy.

Rising borrowing rates have compounded the problem. In January 2020, shortly before the pandemic hit, used vehicle buyers were paying an average of 8.4% annual interest, according to Edmunds. Monthly payments averaged $412. Last month, the average rate had reached 9.2%. And because prices had been rising for more than two years, the average payout had risen to $567.

The average 1% drop in bargain prices will help financially secure buyers with strong credit scores who can qualify for lower loan rates. But for those with poor credit and lower incomes, any drop in prices will be wiped out by higher borrowing costs.

The new vehicle market, on the other hand, has become an option primarily for affluent buyers. Automakers are increasingly deploying rare computer chips to make expensive, loaded versions of pickup trucks, SUVs and other outsized vehicles, usually with relatively low gas mileage. Last month, the average price of a new vehicle fell slightly from August, but remained more than $11,000 higher than its January 2020 level.

Glenn Mears, who runs five dealerships south of Canton, Ohio, says the Federal Reserve’s interest rate hikes, by contributing to more expensive auto loans, are slowing his showroom traffic.

“We can feel a setback,” he said.

Analysts generally say that with shortages of computer chips and other parts still hampering factories, prices for new vehicles are unlikely to drop substantially. But further modest price cuts are likely. Vehicle availability on U.S. dealer lots improved to nearly 1.4 million vehicles last month, from 1 million for most of the year, Cox Automotive reported.

Before the pandemic, the normal supply was much higher – around 4 million. So, historically speaking, inventory remains tight and demand always high. Many buyers are still stuck paying sticker price or more.

“It’s extraordinarily expensive these days,” said Jominy, who estimates there are still 5 million American customers waiting to buy new vehicles.

Despite recent stock market declines, many of these buyers have accumulated wealth, particularly in their homes, and are rewarding themselves with high-end automobiles. In the San Francisco Bay Area, for example, notes Inder Dosanjh, who leads a group of 20 dealerships including the General Motors, Ford, Acura, Volkswagen and Stellantis brands, many people have received substantial pay raises.

“There’s just a lot of money there,” he said.

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