With the four-year anniversary of the start of the pandemic, inflation remains as relevant a topic for consumers now as it was in March 2020. While inflation in many goods and services has started to return to normal levels, cars are a notable exception: They remain significantly higher than their pre-pandemic norms and have fundamentally reset to a new baseline.
In short, the pandemic broke the traditional model of car price forecasting. In order to analyze car price affordability in the context of this "new normal," CoPilot created a Car Price Index report. This index looks at current used car prices compared to the replacement cost of a comparable new car (rather than along a historical depreciation curve).
Due to supply issues and increased production costs, new car prices became structurally more expensive during the pandemic. Over time, these increases trickled into the used market, also bringing these prices up substantially:
New cars
Average price (March 2020): $38,408
Average price (March 2024): $49,447 (29% change)
Used cars
Average price (March 2020): $23,691
Average price (March 2024): $31,556 (34% change)
While the bad news for consumers is that car prices are fundamentally more expensive than they were pre-pandemic, the good news is that there still are deals to be had within this new band of car prices – which this index will track over time.
The pandemic fundamentally broke the car market and shattered long-held assumptions of the industry and car shoppers alike. Car prices are now more expensive in a structural and long-term way. For instance, there are far fewer vehicles now listed below the traditional affordable benchmarks of $30,000 for new cars (12% in 2024, a drop from 38% in 2020) and $20,000 for used cars (30% in 2024, a drop from 53% in 2020).
This shift in the market was first caused by increases to new car prices. These surged during the pandemic for several reasons:
These factors have created a ripple effect: Due to new car supply issues, which reached their most severe levels in 2021 and 2022, used car supply still remains below pre-pandemic levels. This has kept demand consistently high over the past four years and limited the amount that used car prices – historically a depreciating asset – can actually decline.
Previously, used car prices moved on a depreciation curve (according to the age-old truism, a car would lose 10% of its value once you drove it off the lot). Therefore, in order to analyze the value of a used car, consumers would compare it to its original listing price and look at how much it had depreciated over time.
Now, used car prices are substantially elevated because the new car price increases seen during the pandemic have trickled through the market. Because used car prices have generally not depreciated, a new basis has emerged for consumers to evaluate the value of a used car – the current price of a comparable new car (its replacement cost).
CoPilot's Index will analyze car price affordability in the context of this new normal. And though prices are structurally elevated, there is finally some good news on the horizon for consumers. This month, new car inventory has reached its highest levels since the spring of 2021. Consequently, prices have started to soften somewhat from peak levels, and we can expect them to drop further in 2024 as dealers increasingly offer incentives to move cars off their lots.
Moving forward in this new band of elevated prices, this first index report and subsequent versions will offer data and insight on:
Key Takeaways
Key Takeaways
Key Takeaways
Key Takeaways
Key Takeaways
This story was produced by CoPilot and reviewed and distributed by Stacker Media.