We can't believe what people are paying for new cars these days.
We thought it was madness when the average new car transaction crossed the $34,000 mark in 2016, but with the popularity of trucks and SUVs stronger than ever, those prices continue to soar.
A joint forecast from J.D. Power and LMC Automotive shows that new vehicle prices are expected to hit $46,259 this month, an 11.5% increase from the same month in 2021. These are the highest prices on record, surpassing last month's $46,173 number.
Put another way, it means the "average" buyer is roughly looking at the following vehicles: a fully-loaded Kia Telluride SX, base BMW X3 sDrive30i, or an electric Ford F-150 Lightning Pro after the recent price hike. And because this is a 'mean' average of all new vehicle transactions, it means that many individuals are buying more expensive vehicles that pull up the number.
Despite record prices, overall vehicle sales are down compared to last year. New vehicle sales are expected to total 980,400 units in August 2022, a 2.6% drop compared with August 2021 (adjusted for selling days). This decrease isn't due to a lack of demand, but rather a lack of supply caused by chip shortages and various manufacturing delays.
"A significant portion of vehicles are still being sold before they arrive at the dealership," said Thomas King, president of the data and analytics division at JD Power. "This month, 55% of vehicles will be sold within 10 days of arriving at a dealership, while the average number of days a new vehicle is in a dealer's possession before being sold is on pace to be 20 days - down from 25 days a year ago."
Since there are so few vehicles left on the lot and so many units are pre-sold before they arrive at dealerships, manufacturers are offering little in terms of discounts. Automakers are only offering an average incentive of $969 per vehicle, which is 47.1% lower than what was offered last year.
"One of the factors contributing to the reduction in incentive sending is the absence of discounts on vehicles that are leased," King explained. "This month, leasing will account for just 17% of retail sales. In August 2019, leases accounted for 29% of all new-vehicle retail sales."
These higher prices are obviously impacting people's wallets as monthly payments skyrocket from previous records. Average monthly payments broke the $700 mark in July 2022 and are on track to hit $716 by the end of this month. That is a $78 increase from this time last year (a 12.2% increase in monthly payment amounts). Not only are the payments higher, but consumers are also paying a higher interest of 5.51% on average.
There is a small silver lining though. Used vehicle prices remain strong, meaning that buyers have more cash to roll into their next vehicle. The average trade-in is worth $10,011, which is a whopping 32.7% jump compared to last year.
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