If Cars Are More Expensive, Why Are More People Buying New Ones?
Written by
Heather Taylor
Edited by
Gary Dudak
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We’re currently in what Pat Ryan, CEO of car shopping app CoPilot, has called the least affordable car market in modern history.
In July 2023, CNBC reported that new cars priced under $30,000 make up 8% of the market’s supply. This percentage was 38% pre-pandemic. Edmunds data cited in the piece revealed the average transaction price of new cars was $47,892 in May 2023.
Despite the increasingly expensive price tags, sales for new cars remain strong. According to The New York Times, General Motors sold 691,978 vehicles from April to June 2023. This is a 19% increase in sales from 2022 with signs indicating the auto industry is back.
However, this good news is somewhat at odds with other headlines about the painful expenses of new cars encouraging drivers to hang onto their older models. It all begs the question: If cars are more expensive, why are more people buying new ones?
The Car-Buying Market Is Improving
Over the past few months, Matt Jones, senior director of brand and industry communications at TrueCar, said there have been improvements in the car-buying market.
Jones uses the example of OEM incentives for new vehicles. These incentives have increased 83.6% on a year-over-year basis to $2,038 in June 2023. Compared to March 2023, June incentives are up 32%. It’s still lower than pre-pandemic periods, but Jones said buyers may see these incentives as a more welcoming environment for getting a car compared to where things stood last year.
Many Americans Need Cars Now — and Can’t Afford To Wait
According to Jones, there are two types of car buyers: those who need a car and those who want a car.
Generally, those who want a car have both a higher budget and the luxury to wait for better market conditions. The population that needs to own or have access to a car now, Jones said, has to realistically assess their needs versus the market.
Our Hearts (Really) Want New Cars
During his years spent on the auto show circuit, Carl Anthony, managing editor at Automoblog, wondered why so many people bought new, expensive cars. Back then, Anthony said new trucks could be priced as high as $65,000 to $70,000 each. When Anthony started selling cars in 2009, he was always surprised at the number of people who originally looked at a base model vehicle and then wanted something more expensive.
There are practical reasons why consumers will pay for an expensive, new vehicle over a pre-owned car. Some of these reasons include receiving a full factory warranty, complimentary maintenance, better fuel economy and access to the latest safety technology.
Practicality aside, the simplest explanation why people buy new cars is this crazy little emotion called love. Americans love automobiles, especially trucks and SUVs. When our hearts are set on a specific vehicle, we’re not easily persuaded to settle for anything less.
“For some people, the vehicles they gravitate to are based on emotion. Our brains tell us a simple and pragmatic vehicle is the right choice, perhaps a lower or mid-range trim level. However, our hearts want the top trim level with that more powerful engine, endless interior amenities and stylish exterior upgrades,” said Anthony.
Automakers know what people want and they understand how to play into this need. They’ll attach luxury treatments, comfort features and dynamic styling elements to higher trim levels which command a higher premium. Anthony cites the example of manufacturers like Toyota, which has a complete lineup of trucks and SUVs. Some of these vehicles, including the 2024 Tacoma and 2024 Land Cruiser, have been completely redesigned specifically because of the market.
“If the market weren’t there, manufacturers like Toyota wouldn’t go to great lengths and expend the resources to design, engineer and ultimately market these next-generation trucks and SUVs,” said Anthony.
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