New Car Prices Surge to Record Levels, Hitting $49,105 in October

New car prices reached an unprecedented high in October 2023, with the average transaction cost approaching $50,000 for the first time. According to data from Edmunds, the average price paid for a new vehicle last month was $49,105, reflecting a 3.1% increase compared to the same month last year. This significant rise underscores the rapid shift in the automotive market, leaving many buyers astonished.

The surge in vehicle prices spans nearly all categories, with experts indicating that few models are priced lower than they were in previous years. “This has been something that we’ve all been waiting for; I don’t think anyone was ever expecting the number to go down,” said Ivan Drury, director of insights at Edmunds. He noted that the increasing sales of electric vehicles (EVs), which typically have higher price tags than traditional gas-powered cars, have played a role in pushing overall transaction prices to new heights.

Even when excluding EVs from the equation, Drury cautioned that buyers should not expect any relief. “Strip all that away, there’s virtually no vehicle you can buy today that is cheaper than it was from last year, two years ago, five years ago,” he explained. This reality is particularly challenging for returning buyers, many of whom last purchased a vehicle in 2019 or 2020, when prices were significantly lower.

For those trading in vehicles, the average trade-in is now around five-and-a-half to six years old. Drury stated, “If you’re a customer with a trade-in, and you haven’t been to the dealership for anything other than service in six years, you’re going to be floored by seeing the average transaction price being nearly $10,000 more than the last time you bought.”

Monthly payments are also rising, with the average new-car payment in October climbing to $766, a rise of 3.2% from the previous year. While interest rates have eased slightly, with the average annual percentage rate (APR) dropping from 7% to 6.9%, these rates remain significantly above the 4% to 5% rates many buyers experienced on their last loans.

Drury emphasized that, at today’s loan terms, the average amount financed is around $43,000 over a 72-month term, resulting in approximately $9,500 in interest alone. “You’re not even paying for the car at that point; that’s a privilege to borrow,” he said.

While dealers are beginning to offer more discounts than earlier in the pandemic, the relief remains limited. Average incentives rose to $2,240 in October after peaking at $2,262 in June. “For dealerships, they are resorting back to providing discounts. They are getting money from automakers to put cash on the hood,” Drury noted. Nonetheless, vehicles currently stay on dealer lots for about 60 days, which is longer than many dealerships prefer as they aim to keep inventory moving.

With high prices and elevated borrowing costs, analysts suggest that affordability challenges will likely continue for buyers as they move into 2024. The combination of rising transaction prices and limited financial relief leaves potential buyers navigating a complex and costly market.