Transaction prices reflect what consumers are paying for their new vehicles.
How much are you willing to pay for a new car? There still are a few models retailing for under $20,000 these days, with most new models priced somewhere above $30,000. When it comes to paying for a new vehicle, the average transaction price skews things. Indeed, in 2021, consumers are driving away from dealer lots paying an average cost of at least $41,000. That’s according to a joint forecast released in late July from J.D. Power and LMC Automotive.
Huge Year-Over-Year Increases
The current average sets a record and reflects a whopping 17-percent increase over July 2020. Consumers should know, however, that sticker prices haven’t risen anywhere as fast. Instead, a limited supply of vehicles means fewer choices are available. Also, dealers seem to be stocking fully equipped models with few low-cost cars available. Finally, we’re seeing huge dealer markups on some models, including the Kia Telluride and Ford Bronco.
Among auto trends, pricing is something that weighs heavily on consumers. After all, purchasing a new car is the most expensive consumer item after buying a house. And unlike real estate, new vehicles typically lose much value over time. There are a few exceptions, but the operative word here is “few.”
With the global semiconductor chip shortage adversely impacting production, inventories are thin. And thin inventories translate to demand outstripping supply. This means higher-priced vehicles occupy dealer lots and fewer manufacturer incentives are available.
What can consumers do? We have a few suggestions, including the following:
If you do not need to purchase a new vehicle right now, then wait. Once supply aligns with demand, prices should ease. Also, dealers will once again stock more vehicles and manufacturers will improve their incentives. Waiting is not always an option. However, sinking a few thousand dollars into your current ride is still far cheaper than paying the inflated prices some models are commanding. Also, the value of your aged vehicle may be far higher than you thought. Visit KBB.com to obtain its trade-in and private party rates.
What does a new vehicle mean to you? Prestige? Towing power? Passenger-carrying space? For some shoppers, only certain vehicle types will do, such as a minivan or crossover for families. But if you are shopping for yourself, perhaps needing a commuter vehicle, there are some low-cost options available. For instance, the tiny Chevrolet Spark costs $14,595, including the destination charge. If you prefer an automatic, add $1,100. Other ultra-low-cost models include the Kia Rio, Hyundai Accent, and the Nissan Versa. For 2022, there are about six models priced from under $20,000 with another 10 or so priced under $22,000.
Leases still come to an end. This means consumers and fleets are returning their vehicles and usually shopping for new ones. A leased vehicle is sometimes sent to auction, but others are reconditioned and placed on dealer lots. Yes, prices will certainly be higher than they were a year ago. But an older vehicle will cost less as deprecation is factored.
Even fleet owners are feeling the pinch with some, such as Hertz, buying used vehicles. Those models are then made available through their Dollar and Thrifty subsidiaries. Unfortunately, fleet availability is greatly reduced, which drives up prices. Still, a cursory look at the Enterprise.com website reveals thousands of vehicles available across the country. Most have well over 40,000 miles on the odometer, with 50,000 to upwards of 90,000 miles shown. Keep in mind that today’s vehicles last much longer than they did 20 to 30 years ago.
Transaction Prices Done Right
New vehicle prices and transaction prices are not the same. Ordering a new vehicle and having it built to your specifications may be the most cost-effective way to get what you want.