Next year will be the best year to buy a new car since 2019, economist says

If you've been wanting to buy a new car, but couldn't afford it, then 2024 may finally be your year.

Cox Automotive Chief Economist Jonathan Smoke says 2024 will be the best year for consumers to buy a new car since before the pandemic, as new vehicle supply increases, transaction prices come down, automakers are expected to offer more deals and interest rates should ease.

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"With supply normalizing and the economy stabilizing to hit a soft landing and not turn into a recession, it leads to an environment that is the most normal we’ve encountered since 2019," Smoke told the Detroit Free Press recently. "For consumers looking to buy a vehicle, it’s the best year by far since 2019."

That's significant considering the weirdness of the last few years coming out of COVID-19.

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The recent average transaction prices

First, new-vehicle supply hit an all-time low in 2021 and most of 2022 due to parts shortages. That pushed transaction prices up and, as the Free Press first reported, many car dealers were selling vehicles above sticker price.

Then this year, supply improved, but average transaction prices still remained high. The U.S. new-vehicle average transaction price in November was $48,247, an increase of about 1% from October, but down by 1.5% compared with November 2022, according to Kelley Blue Book (KBB). November is the third consecutive month that new-vehicle transaction prices were lower year over year. The past three months mark the only time in the past decade that the monthly new-vehicle average transaction prices did not rise year over year, KBB data showed.

Used vehicle inventory remains constrained, Smoke said. The average used-vehicle listing price at the beginning of December was $26,091, down from about $27,000 in December of last year, according to Cox Automotive data.

By spring expect deals

But even as prices improved, interest rates soared this year keeping affordability a problem for a new or a used car, experts said. Smoke said the average interest rate on a loan for a new car is 9.5% in December so far compared with 5.2% in December 2021. The interest rate on a loan for a new car peaked in October at nearly 10%, Smoke said.

For a used vehicle, the average rate is just over 14% compared with December 2021 when it was 9.3%.

Smoke said the Manufacturer Suggested Retail Price (MSRP) on a car will continue to rise into next year because of higher labor costs after the Detroit Three automakers negotiated new contracts with the United Auto Workers, giving 25% base wage increases over the 4 1/2 year contracts and other automakers following suit offering 9% to 14% raises. Also the cost of the materials that go into cars is rising.

But as the year progresses, Smoke said, consumers will still be able to buy a new car for less than they could have this year.

"I suspect we will see that strength starting in the spring," Smoke said. "Traditionally the tax return season is an important time of year in the vehicle market. That should be at a timeframe when you expect to see interest rates come down and prices will start to show declines in both new and used at that point. So the spring will give opportunities for consumers to buy.

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Consumers gain purchasing power

Smoke predicts more automakers will put bigger incentives on new cars, offering discounts in the price. Already, he has seen buyers get about 2% off the MSRP.

"We expect that to move to 3% and eventually closer to pre-pandemic when the average car sold for 6% below sticker," Smoke said.

This is all good news for the consumer, but the carmakers and dealers will see thinner profit margins next year, Smoke said.

"Even though the product itself is getting more expensive, consumers have more leverage and will be paying less, so the dealer is getting a slimmer margin on the vehicles they sell and the automaker too when you consider the marketing money they spend and the incentives," Smoke said. "But their performance has been historically strong, so it does not mean they will not be making money. Clearly, it’s a much better story for the consumer.”

Dodging a recession

The prediction is a relief given the anxiety hanging over the fourth quarter this year about a possible recession. Smoke said if the nation finishes the quarter strong, he does not see a recession on the horizon.

"The metrics tell us October was good, November was good and we’re not seeing any indicator that December is any different. You have lower gas prices, the stock market is very bullish. It’s a positive way to end the year," Smoke said. "We’re not forecasting a booming economy or crazy growth in the auto market. But when the silver lining is it’s the best year of growth in five years for consumers, that’s good."

Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.