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After a year of supply shortages and rising financing costs, 2024 is shaping up to be the best time to buy a car.
The average transaction price for a new car in the United States in February was $47,244, down 2.2% from February 2023. This is also down 5.4% from the market peak in December 2022, according to Kelley Blue Book.
But new cars are still generally expensive; prices are almost 14% higher than in February 2021.
Incentives such as discounts and rebates are slowly making a comeback as inventories grow for most automakers, but prices may never return to pre-pandemic levels, experts predict.
“The bad news is we’ll never go back to the old normal. The good news is we’re coming out of peak normals into a new range,” said Pat Ryan, founder and CEO of CoPilot, an auto shop. app.
“Now we have this structural movement in new and used car prices that is making consumers roll their eyes,” he said.
Because new cars have become more expensive
The underlying components built into new cars, such as technology, as well as high labor costs keep prices high, Ryan said.
“A fender bender is no longer a small thing,” he said. “If you hit someone with the bumper of your new car today, instead of it costing you $300 with the plastic to replace, it could cost you $2,000 or $3,000 because you have…all this anti-collision and electronics.”
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That’s why it’s difficult to find a new model under $20,000 in the automotive market. It’s also a response to consumers who prefer cars with features like automatic climate control, a touch screen and parking sensors, Joseph Yoon, a consumer insights analyst at the automotive website Edmunds, previously told CNBC.
Because of these advances, Ryan said, new car prices “will never go back to where they were.”
The shortage of used cars “puts a limit” on devaluation
According to Edmunds data, the average transaction price for used cars in the fourth quarter of 2023 fell to $28,371, a 4.4% decline from $29,690 a year earlier.
In recent years, “devaluation has not existed” for used cars due to strong demand, Yoon explained.
Used car prices are likely to remain “structurally higher” because fewer new cars have been produced during the pandemic due to shutdowns and chip shortages. That means more drivers kept their previous cars, making fewer used cars available on the market, Ryan said.
“This shortage of used cars puts a limit on the depreciation of used cars because … there is no used car factory, you can’t build more used cars,” he said.
However, newer used cars, or those that are less than three years old, are depreciating, because they are directly correlated with the recovered inventories of the new car market, Yoon said.
“A three-year-old car is slightly similar to newer cars,” he said.
Cars between five and seven years old still hold pandemic-era values due to low supply, he said. Because fewer older cars are available, high demand keeps prices high.
While prices remain generally high, drivers who need to change tires may have a better chance this year, experts say.
When to buy a car in 2024
Incentives between April and July are expected to be the most attractive in the new-car market, Ryan said.
Car purchasing often takes place in spring and summer.
“To take a test drive, you’ll be outside looking at a car … it’s kind of an outdoor activity,” said Brian Moody, executive editor of Kelley Blue Book.
While interest rates are still high, the Federal Reserve is expected to cut rates this year, which could “give people a little more breathing room,” Ivan Drury, director of insights at Edmunds, previously told CNBC.
“Last year was bad in general. At least this year there’s a silver lining,” he said.
Manufacturers are also increasing incentives on some new cars. Since the deals are not “coverage that covers all brands or even all cars in one brand,” buyers will have to look for such deals, Moody said.
Motorists can get deals on used cars that are less than three years old, Yoon said, and car dealers are more likely to “be a little generous during the holidays.”
“In general, whether new or used, dealers often offer incentives during major holidays such as Presidential Days [Day] weekend,” he said.
The average transaction price for a one-year-old car fell to $38,720, a decline of $6,763 from the peak of $45,483 in the third quarter of 2022, which is a “significant change,” he said.