Purchasing a new vehicle became easier in July, according to Cox Automotive, as the post-pandemic car market normalized under growing inventory and more incentives.
After seeing marginal increases throughout the year, affordability continued to improve. Although new vehicle prices rose slightly from June, average monthly car payments dropped by $9 or 0.9% to $762 in July. Since reaching their height of $795 in December 2022, month-to-month payments have declined roughly 4%. Cox Automotive attributes this progress to higher median incomes, which grew 0.3%, and more OEM incentives. Inventory also increased throughout 2023 as supply chain disruptions and factory closures became less frequent. This trend has subsequently suppressed price hikes, which are now being offset by stronger consumer finances.
Since the COVID pandemic, most new vehicle purchases have come from the luxury and premium segments. To accommodate this shift, automakers have prioritized profitable SUVs, pickups and crossovers, making fewer mass-market vehicles as a result. Dealers carried only one sub-$20,000 model in July 2023, compared to 12 in 2018. These circumstances forced many buyers to either rely on preowned retailers or wait for prices to fall. Although incomes, incentives and payments saw only moderate improvements, they signal that a correction is on the horizon. “After entering the year with affordability at an all-time low, we are finally seeing some improvement,” commented Cox Automotive chief economist Jonathan Smoke, “which should allow some consumers who were priced out of the market to jump back in.”
For now, the new vehicle market is still favoring dealers more than buyers, as evidenced by high profit margins and steady demand. In a recent survey of OEM executives, most automakers see prices remaining inflated for the foreseeable future as inventory improves slowly but surely. However, retail profitability is expected to decline in the coming months should affordability continue to improve.