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Car Prices Are Rising, But Here’s Why It Will Get Better

Car Prices Are Rising, But Here’s Why It Will Get Better

Sticker prices on new vehicles are approaching $40,000 as the nation’s SUV craze continues, but relief may finally be in sight.

A confluence of factors, ranging from a glut of SUVs to increasing discounts and the slowing market for new vehicles, may be poised to slow the ascent of prices.

That doesn’t mean new cars will suddenly be cheap. But prices are no longer on an unstoppable upward climb.

Discounts Are Increasing

In July, automakers offered 2,923 deal packages which is up 27% from the previous year and 9.7% from June, according to Cox Automotive.

The average listed price of a new vehicle reached $39,500 in the first half of 2019 but consumers weren’t typically paying that price. In July, Americans paid an average of just about $37,000 for a new vehicle after discounts were factored in according to the car-buying site Edmunds.

This July, GM boosted incentives by $740 per vehicle compared to a year earlier by “heavily discounting” crossovers like the Buick Enclave and Chevrolet Traverse, according to Deutsche Bank analyst Emmanuel Rosner. Meanwhile, Ford only increased their car buying incentives by $330.

A good portion of the industry deals are specifically targeted, often down to the vehicle identification number or certain package options, according to Cox Automotive.

“All these factors are pushing higher the raw number of incentive programs in the market today,” according to Cox. The discounts will continue to increase to incentivize purchasing.

Flickr / Se.By.

Dealers Under Pressure

As we get towards the end of the calendar year, dealers are supposed to transition to next year’s models, but this year, they’re slightly behind.

What this means for consumers is they’ll get increasingly desperate to sell last year’s vehicles so that they can have the capital to purchase the 2020 lines of vehicles.

In July, around 90% of vehicles on dealer lots were from the 2019 model year – technically the cars that came out the prior year – a higher percentage than any of the past 10 years, according to Edmunds.

Concurrently, only 7% of vehicles for sale in July were 2020 models, which is the lowest level in the past 10 years, according to Edmunds.

Shutterstock / Elnur

SUV Competition Heating Up

For years, all a car manufacturer had to do to successfully sell an SUV was to simply make an SUV. Consumers wanted them and would pay up for that type of vehicle. That isn’t really the case anymore.

SUVs are largely responsible for the auto industry’s price increases. In the second quarter, 71% of vehicle sales were SUVs, crossovers, and pickups. As competition between manufacturers has intensified, discounts have started to really increase.

“Within the SUV segment, you’re definitely seeing more deals than if we had this conversation a year or two ago,” said Jessica Caldwell, analyst at Edmunds.

Nissan is a prime example of this. The Japanese manufacturer has large discounts on the Rogue (typically greater than $4,000) and the Murano (just under $7,000) SUVs despite a corporate plan to reduce incentives to bolster profits, said Kelsey Mays, senior consumer affairs editor of Cars.com.

“There’s a lot of SUVs out there that have substantial incentives,” Mays said.

Shutterstock / Art Konovalov

Sales Decreasing

Rosner projected Thursday that U.S. new-vehicle sales will total 16.7 million for 2019. While still relatively healthy, that would be down about 500,000 from 2018.

Automakers are increasing their sales focus on selling methods that are less profitable to fleet customers like rental-car companies.

“We worry the industry’s growing dependence on fleet sales” could weigh on the industry “after daily rental fleets are refreshed or if business confidence starts to deteriorate,” Rosner wrote in a research note.

Because of the all of the factors that we talked about rising car prices will likely cease or even go down. In some cases the sticker price might stay the same but most consumers will be able to get larger discounts off of the sticker price than they would be able to over the past couple of years. The future is bright for consumers and they should look forward to lower car prices in the coming months.