Is the car bubble going to burst?

[Gecko]

Average new car transaction prices are up $10k over 2020 at almost $49k in Feb 2023:

Average transaction price for a RAV4 is now $37-38k. A RAV4 nearing $40k.

Average transaction price for a Camry is now $33-34k.

The 2016 and 2019 4Runners I bought before my GX were $46k and $47k (Limited 4x4) -- we know the 4Runner has barely changed since then and that (98% same) vehicle now sells for $54-55k in 2023. GX 460 prices are up ~$10k model-for-model over 9 years - also 98% the same car as it was in 2010.

... the above examples are only Toyota, but they apply to nearly any automaker with regards to major increases in the price of new vehicles. At the same time, "affordable" family cars and sedans have disappeared over the last 6-7 years and not surprisingly, auto loans are now stretching to 7 years, and average APR is around 6% presently.

Realizing real wages haven't grown -- and in some cases have decreased -- combined with inflation, this is feeling a lot like a bubble to me.

We're starting to see Ford and Chevy offer lower promotional interest rates on some models, which is usually the first sign of pressure that OEMs are feeling, but it was just a few months ago we were reading that dealers and brands wanted this to be the "new normal" because it was so much more profit: cars sold before they even arrive, sold at MSRP or greater. It only takes 1-2 brands to start offering better deals before the others eventually have to follow suit in some way, and I don't think we're there yet, but I do think it's coming.

Would love to hear from other folks on this. Happy to open the floor for policy discussions, but not political flame baiting, so keep that in mind.

 

[internalaudit]

Unless demand gets curtailed (i.e. people stop buying or leasing, predominantly), I don't see prices going back down. As corporations, being highly profitable is a requirement for shareholders. They will price at what the market will bear.

Everything from grocery and basic staples, to yoga sessions, except income lol, have been going up here in Canada.

 

[Sulu]

Inflation may be caused not only by over-demand but also by under-supply, and that is what is causing the inflation in groceries and automobiles. The high prices we are seeing in groceries and new vehicles was (and still is) caused by a supply shortage, and those shortages have not yet been completely eased.

As the inflation of new vehicles is caused by a shortage of vehicles (which is now causing shortages of used vehicles), this inflation should ease when automakers are able to provide more vehicles. All it will take is one or two automakers to start providing more cars on lots and dealers then willing to sell for closer to (or lower than) MSRP. At that point, transaction prices should start to come down.

 

[Levi]

Remember when some said BEVs will reach price parity with ICEVs?

Well, they were right! The only thing is that it is not BEVs that became as "cheap" as ICEVs, but ICEVs got as expensive as BEVs.

 

[LS500-18]

Remember when some said BEVs will reach price parity with ICEVs?

Well, they were right! The only thing is that it is not BEVs that became as "cheap" as ICEVs, but ICEVs got as expensive as BEVs.

Yes and you are 100% correct.

 

[qtb007]

If you make a straight line across the trend leading up to the last couple years, the average transaction price should be ~$44k today. Things being over valued by 10% isn't much of a bubble, IMO. We probably just see correction in the next couple years but it won't be anything crazy. Cars have always been a depreciating asset.

 

[Gecko]

Average new vehicle transaction price falls again year-over-year - Autoblog

KBB data show November as the third consecutive month that new-vehicle average transaction prices were lower year to year. Here's what else the data show.

www.autoblog.com

 

[ES300h]

I tried to buy an Ioniq 6 here in Canada about 2 months ago. Dealer wanted $8,000 over MSRP in made-up fees. Needless to say I didn't buy it. I now know why they are called stealerships. Hopefully some day prices will trend down because people aren't buying.

 

[mikeavelli]

I’m seeing tons of deals now and more aggressive salespeople are back. All brands. Also more advertising. Seems Hyundai is back giving away cars and VW has sign and drive back. On some specific cars it’s wild, some saying they got 30k off plus more incentives off an Audi RS GT e tron.

Inventory has climbed back.

 

[Och]

You can certainly find deals, but financing is much more expensive, so monthly payments are still high.

 

[mikeavelli]

bump… so it seems car deals are really coming back. Sponsored ads are flying on social.

I think things will get really aggressive this winter. We might get a rate cut soon too.

 

[F1 Silver Arrows]

I am just waiting for the car repos at this point lol.

 

[Och]

Don’t hold your breath, it will take a complete economy crash for prices to start coming down. Raw materials just went up another 5-15%, ridiculous regulations are driving cost, labor costs are sky high. Cars are just going to be less and less affordable.

 

[sl0519]

I'm all for cheaper LFA and LC500 so I can get to see more of them on the roads.

 

[Gecko]

I was chatting with a dealer this week who told me used car prices and trade-in values are down 30-35% this year on average, and it's causing a bit of a shock and disruption in the new car market. Buyers were more willing to spend $45k+ getting strong trade in values and low interest rates, but interest rates are high and trade in values are crashing so people can afford less car in general. Even the 84-month loans aren't enough to make payments palpable.

Also, to @F1 Silver Arrows point above, people who bought cars at or over MSRP in the last 4 years and now want to trade them in are finding themselves under water on loans. Not good.

 

[Och]

I was chatting with a dealer this week who told me used car prices and trade-in values are down 30-35% this year on average, and it's causing a bit of a shock and disruption in the new car market. Buyers were more willing to spend $45k+ getting strong trade in values and low interest rates, but interest rates are high and trade in values are crashing so people can afford less car in general. Even the 84-month loans aren't enough to make payments palpable.

Also, to @F1 Silver Arrows point above, people who bought cars at or over MSRP in the last 4 years and now want to trade them in are finding themselves under water on loans. Not good.

None of this will drive down the price of cars. Look at other parts of the world where people have much lower incomes, yet cars were always much more expensive, lesser warranties, no attractive leases, and much higher vehicle tax. I’ve always said we were spoiled in the US when it came to car prices, and the days of cheap cars in the US are gone for good. The market needed a correction, these under $200 leases on camcordtimas were never sustainable.

 

[Gecko]

None of this will drive down the price of cars. Look at other parts of the world where people have much lower incomes, yet cars were always much more expensive, lesser warranties, no attractive leases, and much higher vehicle tax. I’ve always said we were spoiled in the US when it came to car prices, and the days of cheap cars in the US are gone for good. The market needed a correction, these under $200 leases on camcordtimas were never sustainable.

From what I am hearing, it is indeed driving down the price of cars. Not on MSRP, but there are more incentives and discounts on the hood now than there have been in the last 4 years so that dealers can move inventory.

I agree with you that the long term trend is up and to the right though.

 

[ssun30]

What's really unique about the US car market is the really low spread in price from cheap cars to luxury cars. Cheap cars are too expensive and luxury cars are too cheap.

A commuter car cost about $30k, a mainstream SUV about $45k, but a luxury full size limousine only cost $120k, just 4x the price of a commuter car or less than 3x of a mainstream SUV.

In other markets like China that ratio is over 20x and similarly in Japan over 10x, in developing nations that could be over 50x.

 

[Och]

From what I am hearing, it is indeed driving down the price of cars. Not on MSRP, but there are more incentives and discounts on the hood now than there have been in the last 4 years so that dealers can move inventory.

I agree with you that the long term trend is up and to the right though.

The dealers wont be able to price gouge as much as they used to on sales, but MSRPs are going to continue going up. And while the dealers may no longer screw you with the outrageous markups on the sales floor, they will rape you on the service end. I recently had such a disgusting service experience at the BMW dealership that I bought 8 or 9 cars from over the years. During the plandemic they figured out consumers don't much choice, the concept of customer service is done for.

 

[CRSKTN]

High end cars will accumulate in the hands of wealth.

Normal cars will be an economic drag on peoples lives while car companies cater more and more to whoever the most $/IQ customers are. The stupider and the richer the better. See: nations built on resource wealth.

Stupid people with money are the ideal target.

You know, like people who have slave labor but will drop millions on a license plate.