It’s a good time to sell a car or truck, or to trade one. But the replacement cost for new or used, is way, way, higher compared to last year.
The bargain price for the average new car, a measure of how much people are actually paying, exceeded $40,000 all this year and reached $45,031 in September, according to data from Kelley Blue Book. This is an increase of $4,872, or 12.1%, over the past year.
Charlie Chesbro, chief economist at Cox Automotive, said at a webinar hosted by the American International Automobile Dealers Association.
The average new-car deal price has hit record highs (a month compared to the previous month) six months in a row, according to Kelley Blue Book, which tracks market values for new and used cars.
Even the one-month jump in new car prices was a staggering $1,613, or 3.7%, from August to September, said Kayla Reynolds, an analyst at Cox Automotive, the parent company of Kelly Blue Book. October numbers will be announced by mid-November.
From a seller’s point of view, Reynolds said in a phone interview, “It’s kind of the perfect market.” “New and used cars are known to be in short supply and high in demand.”
The lack of supply of new cars is due to the persistent shortage of computer chips used to control the electronics in modern cars and trucks, on top of the shortage due to the closure of car factories last year, due to the Corona virus pandemic.
Towards the end of the summer, the available supply of new cars was down 73%, or about 2.5 million vehicles (not built and sent to dealers), versus the pre-Covid 2019 days, according to Cox Automotive.
Used cars in short supply, too
For related, but not entirely identical reasons, the used car and truck market also suffers from a shortage of inventory, which has also led to high prices.
Companies that run wholesale and dealer-only auctions where dealers buy a lot of their used inventory complain that volume has decreased from their largest sources of used vehicles—customer swaps, rental returns, repossession, and daily ex-leasing of cars.
The swaps have been disrupted, because customers can’t find the cars and trucks they want, or because shoppers have started putting off purchases in response to price hikes. Rental returns are off, as many customers are buying their leases rather than simply handing them over. Residual Values Mentioned in the Rental Documents – The fixed amount a customer can purchase the non-rented vehicle for, usually thousands of dollars less than its actual value. See, “How to benefit from the high value of your rental car.”
Buybacks have been disrupted, because during Covid, many lenders noticed a moratorium on returning property. Rental yields have fallen at auction houses, because travel has slowed until recently, and because factories are turning rare new cars and trucks into retail customers, and reducing rental fleets.
Rising prices for ‘almost new’ cars
While prices for used cars are still much higher than they were a year ago, values have averaged somewhat in the wholesale market during the summer, according to auction company KAR Global. Then they went back to work again in September and October.
In September, KAR Global said the average wholesale auction price of used cars had risen 20.3% since September 2019 to $15,546.
Prices also continue to increase for the highly desirable category of three-year-old used cars, which are often replenished, with a factory-backed warranty, and resold at a higher price at dealerships, such as Certified Pre-Owned, CPO’s. By comparison, prices for used mid-size sedans that fit the CPO profile have risen about 27% last year and 39% over two years, says Tom Kontos, chief economist at KAR Global. For midsize SUVs or crossovers that are likely to become CPO vehicles, wholesale prices have increased 31% and 34% over the past two years, respectively.
Kontos says CPOs are the closest thing to new cars, so they charge premiums at wholesale and at dealerships.
Many (with money in the bank) can afford higher prices
For both new and used, the high demand is partly pent-up demand from the Covid lockdowns. In addition, Covid has made people think twice about using public transportation or ride-sharing. Finally, historically, American households also have unusually high savings, according to Chesbrough of Cox Automotive.
At the webinar, he said cumulative savings totaled $3.9 trillion in late summer, nearly double last year’s level.
Despite rising gas prices and somewhat shaky consumer confidence, “that level of pent-up savings won’t be spent so quickly,” Chesbrough said. “We can be concerned, but we don’t need to be overly pessimistic about it.”
Under these circumstances, automakers have scaled back discounts for new cars. Kelly Blue Book said incentives as a percentage of average transaction price fell to 5.6% in August, down from a 10-year low of 5.9% in July, and from 10.1% in August 2020. These trends continued into the fall. .
Where the prices of auto parts have risen the most
Some of the new car segments saw price increases above the average increase of 12.1% compared to last year. were driven by trucks, an increase of 16.4%; Hybrid/alternative cars (but not electric vehicles) and midsize cars, both up 15.1%; and high-end luxury cars by 14.4%. The average selling price of a high-end luxury vehicle was $119,312 in September, of a full-size luxury SUV/crossover of $102,191.
The categories with the least price increase compared to last year were SUVs / full-size crossovers (dominant), up 2.3%; Electric cars up 3.5%; and small cars, up 5.0%. The modest increase in electric vehicle prices is at least partly due to the increased availability of mainstream electric vehicles.
The individual brands that experienced significant price increases in September 2021 compared to last year were Cadillac, up 51.2%; Genesis 29.7%; And Mercedes-Benz, up 25.8%. KBB warned that a change in the model mix from 2020 to 2021 could skew a brand increase or a price drop (-2% in the case of the Fiat).
On top of relatively short- and medium-term factors such as a lack of computer chips, there is a long-term trend of customers switching from passenger cars to more expensive crossovers, SUVs, and vans — so much so that domestic auto manufacturers, in particular, have stopped even offering Many passenger cars, in favor of trucks, the most popular and most profitable, to take off.
More and better safety equipment and emissions can drive up prices
Additionally, prices have gone up because cars today come with a high level of standard safety and emissions equipment. Some of that is required, such as backup cameras (since 2018).
But there are also a growing number of optional advanced driver assistance systems, such as automatic emergency braking to avoid forward collisions, and a sophisticated infotainment system, with video screens.
Average transaction prices topped $40,000 for the first time, in the third quarter of 2020, said Reynolds of Kelley Blue Book. That was when it was already clear that consumer demand for new cars had returned much faster than production of new cars could to increase in reserve.