U.S. auto prices remain in high gear in late 2022, with the average vehicle transaction price up 6.3% on a year-to-year basis from September 2021 to September 2022.
The good news is that prices are coming down this autumn.
The average new-vehicle retail transaction price in September is expected to reach $45,622, a 6.3% increase from September 2021, according to J.D. Power. “The previous high for any month—$46,173 — was set in July 2022,” the company reported.
Still, U.S. new and used auto prices are in acceleration mode, mostly due to nagging global economic issues.
“Car prices are rising due to global supply chain issues,” J.P. Morgan noted in a recent research report. “Meanwhile, an ongoing microchip shortage is holding up production in the auto industry, creating a supply crunch. Rising raw material costs are also driving car prices up, exacerbated by the Russia-Ukraine crisis”
Those issues were a big reason why Americans paid an average of $45,869 for a new vehicle in July 2022, a record high.
“We estimate that half of the increase in new vehicle prices relates to the passing along of higher input costs, including raw material costs,” said J.P. Morgan lead automotive equity research analyst Ryan Brinkman. “The weighted average cost of raw materials used to produce a new vehicle hit an all-time high in 2021, rising 116% year-over-year, our data shows."
Electric vehicles have been especially affected by rising material costs “That’s because the prices of key metals including lithium, nickel, and cobalt — essential components of electric car batteries — have spiked,” Brinkman noted.
Used vehicles haven’t escaped high sticker prices, either.
“According to car shopping app CoPilot, consumers in the U.S. today are paying an average of $10,046 more for a used car than if typical depreciation expectations were in play,” the J.P. Morgan report stated. “Likewise, data from the U.S. Bureau of Labor Statistics shows that used car prices surged 7.1% year-over-year in June 2022.”
Shutterstock
Should You Buy or Wait?
For Americans with a real need to buy a new or used vehicle, the trick is to land a new vehicle at the best possible price – but that option may not be available right now.
“It’s hard to predict what will happen in the next 6-12 months, but it appears that supply of new and used cars will continue to be constrained, and demand will remain high,” said TRED chief executive officer Grant Feek. “Consequently, it seems unlikely that we’ll see substantially better deals in the next year.”
One big issue is pent-up demand, with buyers holding off on a purchase as they wait for better deals.
“Because the car market and pricing is high, more people who’ve been waiting will buy cars as pricing continues to hold relatively steady and appears to be the new normal,” Feek told TheStreet.
A buying decision isn’t easy right now, with so many price-impacting factors in play.
“Any decision to buy now probably depends on the local market, the brand of vehicle, and the dealership,” said TheBanksReport president Cliff Banks.
Having said that, Banks said he leans towards not buying a new car today.
“I’d wait for inventories to come back,” he told TheStreet. “It’s a question of supply and demand. More cars on dealers’ lots will likely force prices down. It’s all guesswork right now. But things can change quickly as demand seems to be less today than it was a couple of months ago.”
One option may be leasing a vehicle instead of buying one.
“When you lease a vehicle, your monthly payment goes toward the depreciation of the vehicle, which is typically 50% of the vehicle over three years,” said Gunther VW Delray director of marketing and sales Giovanni Velez. “As long as the payoff amount is 50% of the purchase price, then your lease payment shouldn't be affected.”
If leasing isn’t an option and a vehicle purchase is in play, know where you stand before visiting a dealer or online auto seller.
“The best way to get a deal from a car dealership right now is to know your car's trade-in value, the down payment you intend to make, and your monthly budget then stick to your plan,” Velez told TheStreet. “When you follow your plan, you'll get a great deal on a new vehicle you'll love.”
It’s also critical to know what’s happening in your local market.
“Compare prices at different dealerships,” Banks told TheStreet. “The big listing sites – Cars.com (CARS), Autotrader.com (KBB.com), and TrueCar.com – will provide you a snapshot of what vehicles are selling for in your market. That will give you an idea of what you’re working with.”
In addition, check out CarMax (KMX), Carvana (CVNA), KBB, and Vroom (VRM) to see what they’re offering for specific used vehicles, Banks advised.
“Find a used vehicle you’d like to buy and then see what those companies are offering for comparable vehicles,” he said.
