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The Car Market Balloon Is Deflating

10
Bradley Brownell
·2 min read
Image: David Zalubowski (AP)
Image: David Zalubowski (AP)

For the first time in several years, car prices are actually cooling, and dealers and manufacturers are once again offering cash incentives for new vehicle purchases. With the inflationary explosion we’ve seen in the last three years, it’s nice to have a slight reprieve, despite the fact that average transaction prices nearly reached $50,000 at their peak, and remain about 25% higher than they were prior to the 2020 industry shakeup. There are a bunch of reasons for that, including waning demand, increased supply, and the supply chain shortages we’ve dealt with for the last three years are finally easing.

According to Cox Automotive, new vehicle inventory has increased from 1.75 million vehicles in January to just shy of 2 million vehicles at the end of June, with the trend continuing upward. Inventory just a year ago was hovering just over one million new vehicles nationwide. That thin spread explains a lot of why prices zoomed so high. That same report indicates that dealers currently have around 56 days of supply at current demand rates. As prices fall, demand will increase, reducing daily sales supply. At some point, we’ll find a new lower equilibrium.

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Transaction prices are down 2.4% from January, and according to Kelley Blue Book, that’s the highest drop in over a decade. For the first time in a long time, average new cars are selling for more than $600 under MSRP.

If you’re in the market to buy, things are getting better for you. It’s probably a good idea to continue waiting if you can, but hopefully we’ll be back to a more normal car market in the next few quarters.

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