New car prices finally drop from record highs

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New car prices are finally coming down as vehicle inventory improves and car loan interest rate reach the highest level in three years.

The average transaction price for new vehicles remains extremely high — up more than 24% over the past two years — but the trend is changing, according to a recent report by consumer research firm JD Power. The average transaction price for October is expected to be several hundred dollars cheaper than the record level reached during summer. It is expected to fall to $45,599 for the month of October from a high of $46,173 in July.

Although this is just a drop – and new vehicles continue to be extremely expensive in the grand scheme – October’s price drop could be part of a downward trajectory similar to that of used car pricesdown for several months, according to government data.

For many buyers, buying a new car remains difficult. Average auto loan interest rates are expected to exceed 6% for the month of October. And the average monthly payment for new car purchases is expected to be $711, up from $664 a year ago, according to Thomas King, president of data and analytics at JD Power.

Rising interest rates combined with higher than normal prices means the vehicle market is tough to buy.

Still, the pace of new vehicle sales in the United States picked up in October as vehicle inventories improved, helping make it a strong month for automakers, King said in the report.

“While rising interest rates continue to put pressure on affordability, buyers spent more money on new vehicles this month than in the previous October,” King added.

On a recent earnings call, General Motors executives said supply chain issues have eased and auto parts have become more available (despite lingering problems in countries like Mexico that continue to have an impact on vehicle production). Cox Automotive, the parent company of Kelley Blue Book, reports that the inventory of new vehicles in the United States just hit the highest level since June 2021, with manufacturers churning out more cars.

Like JD Power, Kelley’s Blue Book reports that new car prices have started to fall, with a 0.3% drop from August to September. However, vehicle affordability has deteriorated month over month because auto loan rates have risen so much due to the Federal Reserve interest rate hikes aimed at slowing inflation.

The end of the year is traditionally when new vehicles are downsized to make room for new models, according to Cox. But vehicles from some manufacturers remain so rare that deep discounts are unlikely this year.

Ford executives on an earnings call last week said high auto loan rates are reducing affordability for some buyers, but they are optimistic there will still be enough demand from U.S. buyers to keep car prices high at least through the end of 2022. Going forward, they expect manufacturers to offer more discounts to try to keep buyers interested even with rising rates. interest on car loans at high levels.

With no discounts at the moment, some shoppers are responding to higher rates by opting for shorter financing terms to limit their interest payments. But because of the high prices, other buyers are forced to take long-term loans to get lower monthly payments, according to Ford.

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