New car prices had the smallest year-over-year increase in four years, according to just-released June data.
Similarly, used car prices show signs of stabilizing, even cooling slightly. In new data released this week, Cox Automotive said its Manheim Used Vehicle Value Index showed the prices car dealers paid for a used car in June dropped dramatically from the year-ago period. And, the index was down 4.3% in June compared with May, which analysts say is one of the largest drops in the index's history.
But experts don't expect dealers to pass that same level of savings on to consumers just yet. Still, used vehicles' list prices are down slightly, even as the average mileage on used cars is now higher due to fewer late-model used cars entering the market.
A man walks through a used car lot in Pittsburgh on Thursday, Sept. 29, 2022.
On the new car side, the average price Americans paid for a new vehicle in June was $48,808, up 1.6% from the year-ago period, Kelley Blue Book, a Cox Automotive company, said Tuesday. That is the smallest year-over-year price gain since the start of the global pandemic, Kelley Blue Book noted. And, compared with the start of the year, transaction prices are down 1.7%, or $865 from $49,388 in January. It is the largest January to June tumble in the past decade, according to Kelley Blue Book.
“The fact that average transaction prices are up a meager 1.6% year-over-year in June is notable,” said Michelle Krebs, executive analyst at Cox Automotive. “A year ago, the industry was looking at transaction prices that were consistently up 10% to 12% year-over-year. With no inventory in place, it was inflation gone wild."
Now, as inventory consistently grows and supply and demand are balancing out, the price gains seem to be under control, she said, which is "good news for shoppers," Krebs said.
Price goes down, mileage goes up
The Manheim Used Vehicle Value Index is a measurement of wholesale used-car prices calculated by tracking those sold at Manheim's auctions across the nation. The index fell 4.2% in June compared with May. That means as supply of used cars has improved, dealers are paying less for them. The average wholesale price for a used car in June was $20,224, down 10% compared with June 2022.
But that doesn't mean dealers will pass that savings onto used-car buyers.
"Rule of thumb with wholesales is that what happens there usually impacts retail about six to eight weeks later – but usually not to the extent, so no 10% year-over-year decline expected," said Mark Schirmer, spokesman for Cox Automotive. "But certainly price moderation."
Two men check out a used car on a lot in Pittsburgh on Thursday, Sept. 29, 2022.
In fact, Charlie Chesbrough, Cox Automotive senior economist, said prices have been falling in used wholesale, but Cox Automotive is not seeing similar declines on the retail side. Cox Automotive data showed in June the average list price for a used vehicle was $27,147 with an average mileage of 71,431 compared with June 2022 when the average list price was $27,998 with average mileage of 69,842. So as used car prices are coming down slightly, the used vehicles available have higher mileage.
No meaningful 'used car summer savings' yet
At Edmunds.com, analysts agree that car buyers likely won't see used-car prices drop substantially any time soon.
"Even as dealers are paying less, it doesn't guarantee the money they save will be passed on to the consumer when it comes time to retail those same units," said Ivan Drury, director of Insights at Edmunds.
Drury said that dealers are likely hedging their bets against paying too much for a used car if prices or supply shift. That would indicate dealer pessimism that the high used vehicle values can be sustained in the second half of the year.
Ivan Drury, director of Insights at Edmunds.com.
"Which would indicate dealers are assuming typical seasonality of pricing will return, especially as we're aware that the latest Fed stalling on the rate hikes is just a temporary thing and that the next meetings will result in rate increases," Drury said.
He noted demand for new and used cars remains strong and, "Dealers might be forecasting lower (used car) values, and even with a lag time between what they buy versus when they sell, we're not going to see this turn into any meaningful used car summer savings."
New and used car inventory improves, but still tight
The total supply of used cars nationally is 2.22 million units, 10% below what it was last year at this time, said Chris Frey, senior manager of economic and industry insights for Cox Automotive. In June, dealers had a 47-day supply of used vehicles compared with 52 days of supply a year earlier, Frey said.
"It's worth noting that day supply is fairly normal for this time of year, which isn't something we've seen in three years," Frey said. "Dealers are balancing their inventory to the sales rate, keeping days supply steady even as total supply continues to improve in the used market."
Michelle Krebs, executive analyst at Cox Automotive, is pictured here at the LA Auto Show in November 2018.
But demand is keeping pace with supply, which Krebs said will likely remain constrained.
"We don’t expect huge declines in used vehicle sales – not back to 2019 – because we estimate about 10% of buyers who used to be able to by a new car can no longer afford new and have turned to the used vehicle market," Krebs said in an email to the Free Press. "By historic standards, there’s still fairly low inventory of used vehicles, particularly newer ones because we did not sell many new cars and we did very little leasing, which typically provides a good newish used car supply. And rental car fleets were buying used vehicles when new ones weren’t available, not selling them as they usually do."
New cars see more spiff spend
Frey said new vehicle inventory in June was up by 74% compared with the year ago period to 1.95 million vehicles across the industry. Last year at this time, all automakers suffered a dearth of inventory as a shortage of semiconductor chips used in various car parts, hampered new-car production.
Kelley Blue Book showed that automakers' incentive spend increased for the ninth consecutive month in June to the highest level since October 2021, averaging $2,048, or 4.2%, of the average transaction price. One year ago, average incentive spending was 2.3% of the average transaction price.
The 0% financing deal, oddly enough, remains in 2023 on select models at a time when many new car buyers took on an average new car loan rate of 9% in June -- the highest average in nearly 20 years, according to data from Cox Automotive.
File art: Sign reflects on the hood of a Chevrolet Trailblazer sport utility vehicle on Aug. 19, 2002. at Jefferson Chevrolet in Detroit. Nine days after the Sept. 11 terrorist attacks, General Motors Corp., offered no-interest financing to "Keep America Rolling," as the campaign was called. (AP Photo/Paul Warner)
Some more good news in June is that the average price consumers paid for a new vehicle fell to $345 below manufacturers’ suggested retail price. A year ago, the average transaction price was $698 over MSRP.
As a result of the improved pricing, new-car sales in June by volume were the highest since May 2021, Kelley Blue Book said. Sales into fleet and increasing incentives contributed to the 20.7% year-over-year volume gain.
The Tesla effect on EV and luxury vehicle prices
Luxury market leader as well as best-selling electric vehicle maker, Tesla, has slashed prices by more than 11% so far this year, Kelley Blue Book said. It estimates the average Tesla buyer spent $55,106 for a new car, down from more than $62,000 in January.
The drop in Tesla prices is bringing the average transaction prices for EVs and luxury cars down. In June, the average buyer of a luxury vehicle paid $63,977, down 2% from the year-ago period. The average buyer of an EV paid $53,438, down 20% from $66,390 in the year-ago period and down from more than $61,000 in January, Kelley Blue Book said.
A sign bearing the company logo outside a Tesla store in Cherry Creek Mall in Denver is seen here on Feb. 9, 2019. Tesla's recent price drops have helped bring the average transaction prices for EVs down across the industry.
In terms of supply, as measured by days’ supply, the EV category is well above the overall industry. At the end of June, the EV segment days’ supply was 103 days, while industry days’ supply stood at 53.
“The steep drop in average EV prices this year, led by Tesla price cuts, has been a key driver of overall, industry-wide price moderation,” added Krebs. “A year ago, the average EV price was above the average luxury vehicle price. Today, as inventory and availability build, EV prices are moving closer to the industry average.”
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