The wait may be over for car shoppers stalling on their big purchase until prices fall. Cox Automotive reported that vehicle prices were down for the 10th consecutive month in July. But even with lower vehicle prices favoring buyers, prices are only part of the story. Drivers will still have to come to terms with steep interest rates and tighter credit availability.
Consider what experts recommend when making a new car purchase this summer and, if you have the option, whether continuing to wait is a good idea.
New vehicle prices are down, inventory levels reported healthy
Following the pandemic, vehicle production was down dramatically. This made it more challenging for drivers to find specific vehicles that they wanted and the low supply drove higher costs.
“We went through a few lean years there where we lost about two and a half million units per year in production,” recalls Erin Keating an executive analyst at Cox Automotive.
This meant, she explains, that shoppers were often just buying what was available in the lot.
The market is now in a much healthier state. Drivers have more vehicles to choose from and won’t have to compromise. Instead, buyers can shop for the best vehicle for their specific needs. Inventory of total unsold new vehicles was at 2.91 million in July, which is higher by 52 percent year over year, according to Cox Automotive vAuto Market view. High inventory is helping drive vehicle prices down.
Aside from more vehicles available on dealership lots, prices are down. In July, the average transaction price for a new vehicle was $48,401, down 3.1 percent from the peak in December 2022. And while these price tags are nowhere near as competitive as pre-pandemic, any decrease is a welcome change for shoppers looking for a deal.
There is still variability in costs across vehicle types. Drivers shopping for compact and subcompact SUVs are likely to find a better deal than those shopping for full-size pickup trucks, for example. Compact and subcompact SUV options made up about 1 in every 4 sales in July and fell below the industry average. The average cost was $36,621 for compact cars and $29,827 for subcompact SUVs.
| Vehicle type | July 2024 Transaction Price (Avg) | June 2024 Transaction Price (Avg) | July 2023 Transaction Price (Avg) | Year-Over-Year Percent Change |
|---|---|---|---|---|
| Compact Car | $26,798 | $26,450 | $26,904 | -0.4% |
| Compact SUV/Crossover | $36,621 | $36,491 | $36,853 | -0.6% |
| Subcompact SUV/Crossover | $29,827 | $29,714 | $30,233 | -1.3% |
| Full-size Car | $46,467 | $45,153 | $47,955 | -3.1% |
| Minivan | $46,722 | $47,288 | $48,241 | -3.1% |
| Full-size Pickups | $65,713 | $65,560 | $65,648 | 0.1% |
Source: Cox Automotive
More available incentives have also helped offset high costs. Incentives for the lower-priced compact and subcompact SUVs are well above the industry average.
There are many expensive, high-profile vehicles out there, but consumers have many good options priced well below industry average. We hear this from the large dealers all the time: No matter the budget, chances are we can make something work. This is particularly true where inventory is higher, and incentives are following.
— Erin Keating, senior analyst at Cox Automotive
Keating encourages shoppers considering buying to work with dealers rather than coming in with one car in mind. Dealers, as she explains, want to work with you. Just as you want to purchase a new vehicle, they are incentivized to sell the vehicles on the lot.
Come in with a budget in mind, but consider checking out older model years or similar options. You might even secure a better deal.
Interest rates remain elevated
While shoppers will feel some price tag relief, steep auto loan rates will continue to make the cost of purchasing a vehicle a challenge. In the first quarter of 2024, the average rate for a new vehicle was 6.73 percent. Use cars averaged even higher, at almost 12 percent, according to Experian data.
These industry trends can make getting the best rate a challenge. Credit availability has tightened for drivers across the credit spectrum. The Dealertrack Credit Availability Index, a Cox Automotive stat that measures monthly auto loan credit access, noted that access worsened in the month of July and is down year over year. Credit across all lender types tightened in the same month, with bank-backed lenders tightening the most overall.
Rates in the double digits also add up to high monthly costs, an average of $735 and $523 for new and used cars, respectively. This is especially true for those with a small credit history or a less-than-perfect score. If you have poor credit, start by comparing bad credit auto loan rates, as you are more likely to secure approval.
If you plan to make a purchase, it is important to come to the dealership with a clear idea of how much car you can afford by securing preapproval. That way, you will boast the negotiation power of a cash buyer, which will also ensure you won’t overextend your budget.
How to decide if now is the right time to buy
The key to determining if now is the right time to buy is looking at your needs and budget. According to Keating, available used car inventory could potentially shrink, which can make it a good time to consider new over used. According to Keating, available used car inventory could potentially shrink due to lack of production and increased leasing during the pandemic. So with fewer used options, buying new could be a smart route.
“Zero to three-year-old used vehicles are going to be hard to come by in the next few years, and therefore, I would think a new car would really be a good option for a lot of consumers,” Keating shares.
She recommends preparing for the purchase and accepting the fact that a new car might be the only option if you want a car manufactured in the last three years. Whether new or used, if the next step is to head to the dealership, start by comparing auto loan rates to ensure you get the best rate available.
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