New and used car prices decline in Aug. but buyers are still hesitant

Car prices are down, and supply levels are up across both the new and used vehicle market, yet affordability challenges continue to keep consumers at home.

Driving the news: Measures for new and used vehicles continued to follow similar trajectories compared to the rest of the year in August, according to Cars Commerce’s monthly report.

• New car prices are lower by 2.5% year-over-year and 0.7% month-over-month, down to an average of $48,976. Supply levels are still on the rise, jumping 40.2% from 2023 and 3.2% from July.

• On the used vehicle side, prices are down much farther on an annual basis, declining 4.9% year-over-year, despite a marginal increase of 0.2% from the previous month. Preowned inventory is mostly flat compared to last year, however, with supply levels rising only 2.3% over August 2023.

Zooming in: But while lower prices and more availability should be driving car sales forward, demand seems to be heading in the opposite direction.

• Vehicle demand, measured by the number of searches on Cars Commerce’s platform, is down across both the new and used markets.

• Interest is down 6.6% year-over-year on the new car side and 3.4% on the used car side.

Behind the scenes: Why is demand lower than last year despite improvements in pricing and supply?

• On the one hand, overall affordability has improved only slightly. Cars Commerce’s New Car Price Index, which accounts for the total cost of buying a car, including financing expenses, shifted down 3.9 points to a score of 131.8. Percentage-wise, this amounts to a 2.9% downshift in affordability, a decline most consumers aren’t going to notice.

• On the other, prices dropped swiftly early in the year thanks to a cheaper vehicle mix, but have remained relatively flat ever since. This is true for both new and used cars.

Bottom line: Consumers are holding out for more significant improvements in the car market and aren’t likely to change their buying habits for marginal shifts. That said, Edmunds reports that 64% of surveyed vehicle shoppers would change the timing of their next purchase if the Federal Reserve cut interest rates. Given this past week’s half-point reduction, it’s possible we may see demand trends finally begin to break their current cycle.

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