The Zhitong Finance App learned that according to Kelley Blue Book data, the average transaction price of a new car in the US in February 2023 was 47,244 US dollars, down 2.2% from February 2023, and 5.4% lower than the market high in December 2022, but the price of new cars is still generally high. Compared with February 2021, the price is almost 14% higher.

Incentives such as rebates and discounts are slowly returning as most carmakers' inventories increase, but experts predict that prices may never return to pre-pandemic levels.

Experts say car prices are cooling down, but “we will never return to the normal level they used to be,” and after a year of supply shortages and rising borrowing costs, 2024 will be a better year for car buyers.

Coincidentally, Pat Ryan, founder and CEO of the car shopping app CoPilot, also said, “The bad news is that we're never going back to normal. The good news is that within the scope of the new normal, we are back from our peak.”

He said, “We now have this kind of structural change in the price of new cars and used cars, which surprised consumers.”

Why are new cars getting more expensive?

Ryan said that the basic components built into new cars, such as technology and high labor costs, are the reasons why prices remain high.

He said, “Now minor accidents are no longer trivial matters. If you hit someone today with the fender of a new car, it used to cost $300 to replace the plastic, now it could cost $2,000 or $3,000 because you have... all of these anti-collision and electronics.”

That's why it's hard to find new models that cost less than $20,000 in the car market.

Additionally, Joseph Yoon, a consumer insight analyst at the automotive website Edmunds, also said that the rise in car prices is partly a response to consumer preferences. As consumer demand for higher technology and convenience features increases, such as increasingly choosing cars equipped with features such as automatic climate control, touch screens, and parking sensors, car manufacturers are incorporating these advanced features into design and production, leading to a general rise in the price of new cars.

Ryan said that due to these advancements, new car prices “will never return to past levels.”

Used car shortage 'sets bottom line for depreciation'

According to Edmunds data, the average transaction price of used cars fell to US$28,371 in the fourth quarter of 2023, down 4.4% from US$29,690 in the same period last year.

Due to high demand, used cars have “barely depreciated” in the past few years, Yoon explained.

Ryan said that due to production shutdowns and chip shortages during the pandemic, new car production declined, so used car prices are likely to remain “structurally high.” This means more drivers are keeping their previous vehicles, and fewer used cars are available on the market.

He said, “The shortage of used cars sets the bottom line for depreciation of used cars because... without a used car factory, you can't build more used cars.”

However, Yoon said that new cars that have been in use for more than 3 years are directly related to inventory recovery in the new car market, so newer used cars are depreciating.

He said, “A car that has been around for three years is about the same as a new car.”

He said that due to insufficient supply, cars aged 5 to 7 years are still at the same price as during the pandemic. Since there are fewer older models, high demand keeps prices at a high level.

Despite generally high prices, experts say drivers who need to change their vehicles this year may have a better chance.

When is the best time to buy a car in 2024

Ryan believes that incentives between April and July are expected to be the most attractive period for the new car market. Also, car purchases usually take place during the spring and summer seasons.

Brian Moody, executive editor of Kelley Blue Book, said, “To do a test drive, you have to watch the car outdoors... it's a bit like an outdoor activity.”

Edmunds' Director of Insights Ivan Drury said earlier that although interest rates are still high, the market expects the Federal Reserve to cut interest rates this year, which may “give people more breathing room.”

“The overall situation was very bad last year, but at least there are some positive aspects this year,” he said.

In addition, car manufacturers are also increasing incentives for certain new cars. Brian Moody of Kelley Blue Book said that since offers aren't a common phenomenon that covers all brands or all models within a certain brand, car buyers need to spend time finding the best deal to suit their needs and budget.

According to Yoon, drivers can get preferential deals when buying used cars that are less than 3 years old. He noted that during the holidays, car dealers are more likely to offer more generous discounts and offers.

He said, “Generally speaking, whether it's a new car or a used car, dealers often offer discounts on major holidays such as President's Day weekend. The average transaction price for a 1-year old car fell to $38,720, down $6,763 from the peak of $45,483 in the third quarter of 2022, which is a “meaningful shift.”