New car prices are down 5.4% from the record high in December 2022, but that doesn’t necessarily mean it’s easier to afford a vehicle.
High auto loan rates, soaring auto insurance costs and rising gas prices are negating the relief that comes from lower prices.
In February, the average transaction price for a new vehicle was $47,244, down 2.2% from a year ago and down more than $2,500 from an all-time high of about $49,800, according to data from Kelley Blue Book (KBB).
Car prices are falling because inventory of new vehicles is about 50% higher than the same time last year, meaning car buyers have more power to negotiate prices at the dealership. Automakers have also improved incentives such as cash rebates and preferential financing offers.
However, car prices are still much higher if you compare the current average to the level of February 2021, before inventory shortages caused vehicle prices to skyrocket. (According to KBB, the average price of new vehicles has increased by $6,600 over the past three years.)
“While everyone can applaud the fact that prices are falling, even marginally for now, affordability continues to challenge the market,” Erin Keating, executive analyst at Cox Automotive, said in a report, adding that incomes did not they increased as fast as cars. prices.
Looking beyond vehicle transaction prices, many of the other costs of car ownership have increased:
Car loan rates
The average loan rate for the purchase of a new vehicle was 7.2% in the fourth quarter of 2023, a huge increase from the period before the Federal Reserve began raising interest rates to slow inflation. Two years ago, the average auto loan rate was 3.9%, according to data from an Experian report earlier this month.
To put it in perspective, a buyer who borrows $40,000 to purchase a new car now would pay about $3,600 more over the life of the loan at the current average rate than buying a car at the same price in 2021.
Car Insurance
According to the latest Consumer Price Index (CPI) report, motorists are facing car insurance costs that are 20.6% higher than a year ago. CPI data shows that the average cost of a six-month policy increased by $138 over that time, from $669 to $806, KBB reports.
Auto insurers are still working to implement rate increases in many parts of the country as they deal with more expensive claims, and some experts say motorists can expect insurance prices to rise by about 10% in 2024.
Petrol prices
The price of gas is the latest factor driving up the cost of car ownership. According to AAA, the average gallon of gas costs $3.49, which is 21 cents more than a month ago and 4 cents more than a year ago. Until a few days ago, gas prices had remained below year-ago levels through 2024, but that has now changed due to rising oil prices.
Gas prices typically rise in the spring as the weather gets warmer, so it wouldn’t be at all surprising if the upward trend continued.
“Gasoline demand is rising as more Americans leave, combined with the summer switch to gasoline, which is well underway, and continued refinery maintenance,” Patrick De Haan, chief of oil and gas, said in a report Monday. of GasBuddy oil analysis.
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