New vs. Used Car Market: What the $20K Price Gap Means for Consumers

The price gap between new and used vehicles have reached unprecedented levels. According to a recent study by Edmunds, the average new car price in Q3 2024 hit $47,542, compared to $27,177 for a used car—a $20,365 difference, marking the first time the disparity has crossed the $20,000 threshold.

This shift in pricing is leaving many consumers weighing their options more carefully, as they seek the best value in a market filled with escalating car costs and economic uncertainties.

Why the Price Gap is So Wide

New car prices have been stable or increasing slowly, while used car prices dropped by 6.2% from last year. However, the drop in used car prices isn’t as helpful as it sounds, given that used vehicle prices skyrocketed by a staggering 31.4% since Q3 2019, largely due to the pandemic’s impact and subsequent chip shortages.

This major rise in used vehicle prices, combined with steady new car prices, has widened the gap, leaving buyers in a bind: should they invest in a new vehicle or try to find value in a volatile used car market?

The Impact of Diminished Incentives on New Car Purchases

Historically, manufacturers offered incentives on new cars, making them more competitive with used vehicles. However, recent supply constraints forced manufacturers to reduce these incentives, effectively removing the financial buffer that once closed the gap between new and used prices.

Many consumers are finding it harder to justify the cost of a new car when used vehicles, despite high prices, remain relatively cheaper. However, there’s a bit of relief on the horizon: as the supply chain stabilizes, incentives are beginning to return.

In Q3 2024, the average discount on new vehicles increased to $1,744, compared to just $828 during the same period in 2023. These discounts, though not as substantial as pre-pandemic offerings, may help offset costs for buyers looking at new models.

Longer Turnover Times and What They Mean for Buyers

One interesting trend highlighted by Edmunds is the difference in turnover times. The average new car now takes 57 days to sell—the longest duration in over three years. In contrast, used cars are selling at a brisk pace, with an average turnover time of just 36 days.

This extended turnover for new cars could indicate softening demand, signaling to manufacturers that more incentives or pricing adjustments might be necessary to attract buyers.

For consumers, this may be good news. Longer turnover times often lead dealerships to sweeten deals to get cars off their lots, so if you’re in the market for a new vehicle, it might pay to keep an eye out for year-end discounts.

Should You Buy New or Used?

The decision between new and used is more nuanced than ever before, as each option has its pros and cons in today’s market. Here are a few considerations:

1.Even with the decline in used car prices, the market remains unpredictable. If you’re flexible with make and model, you might score a deal, but expect increased competition from other buyers looking to avoid the cost of a new vehicle.

Tip: Look for certified pre-owned (CPO) options, which often come with warranties and have undergone rigorous inspections. CPO vehicles provide peace of mind without the new car price tag.

2. New vehicles come with the latest safety and technology features, which can be a significant draw for many buyers. Additionally, they offer the advantage of lower maintenance costs for the first few years.

Tip: With incentives starting to return, it’s worth checking dealer and manufacturer discounts, especially if your budget allows for a new purchase.

3. The financing terms you secure could impact your decision. New vehicles often come with better financing rates, while used cars might require higher interest rates due to depreciation and risk factors.

Tip:Get pre-approved for an auto loan before you start shopping. This not only helps you understand your budget but can also provide leverage to negotiate better rates with dealerships.

Overview on New vs. Used Price Gap

Today’s car market presents a real challenge for anyone looking to buy. With a $20K gap between new and used vehicles, affordable options can feel like they’re slipping away, and buying used might seem like the easy answer. But even then, buyers are often choosing older cars with higher mileage compared to what the same budget could get just a few years ago.