Record high new and used car prices continue in 2022
The last time we reported the average new car price in the middle of 2021, it had reached a record high. By the end of 2021, it had risen 10% more, according to a J.D. Power and LMC Automotive report published last week.
Constrained supply, unmet demand, and high dealer markups continue to result in the unusual condition of record high new car prices, record high used car prices, and record high dealer margins fueled by truck and SUV sales.
Car shoppers can expect more of the same at least through the early part of 2022.
“Despite optimism towards the end of 2021 that diminishing supply chain disruption would result in more vehicles being delivered to dealerships, the new-vehicle supply situation has shown no meaningful improvement,” Thomas King, president of data and analytics at J.D. Power, said in a statement. “The volume of new vehicles being delivered to dealerships in January has been insufficient to meet strong consumer demand, resulting in a significantly diminished sales pace.”
Car shoppers don’t seem daunted. In December, the average transaction price consumers paid for a new car was $45,283, according to J.D. Power. In July 2021, the same tracking system pegged the number at $41,044, which was a record at the time
Automaker incentives continue to remain low, and fleet sales are down, meaning that the average consumer is driving much of the price hikes.
Despite a lower sales volume forecast of 13.1 million cars (excluding fleet sales) for 2022, down from 14.3 million a year ago, shoppers are spending more money on the whole, estimated at $38.2 billion, which is an increase of $4.4 billion from January, 2021. The beneficiaries are dealers, who are estimated to make $5,138 on each vehicle sold, which is more than double what they were making a year ago. J.D. Power projects total dealer profit of new-car sales to be up 117% from last year.
Consumers have used their dollars to show preference for high-end trucks and SUVs, but chip shortages have limited the allocation to lower trims with fewer features and lower margins.
Supply chain interruptions caused by the pandemic continue to limit customer choice, and inflation represents a new normal, though the average new car price in January is expected to drop below $45,000.
The outlook isn’t all bad for car shoppers, especially with trade-ins. The value of the average trade-in is estimated at $9,852, which is an 88% increase from a year ago. A low interest rate of 4.14% encourages shoppers flush with cash from the vestiges of last year’s stimulus aid to continue to spend.
“Record new-vehicle prices are being supported by exceptionally strong used-vehicle prices, as new-vehicle buyers benefit from more equity on their trade-in vehicles,” King said.
But used car prices also remain high, 28% higher than this time a year ago, according to Kelley Blue Book. At the end of 2021, the average used car sold for more than $28,000. There are some great new cars that cost less than that, including the redesigned 2022 Honda Civic and the new 2022 Ford Maverick, which won our Best Car To Buy 2022 award.
Overall and across the globe, LMC Automotive president Jeff Schuster expects some relief that should extend to consumers.
“We continue to expect the automotive market to weather the short-term risk…on a stabilizing supply of vehicles by year-end, as well as reduced disruption from the pandemic,” he said.