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  • Writer's pictureBrian Cathcart

The Decline of the New Car Market: Why Interest Rates and Rising Prices are Discouraging Buyers

The new car market is in decline, and experts say that interest rates and rising prices are to blame. Despite a strong economy, sales of new vehicles have been slipping for several years, leaving many in the automotive industry struggling to find a way forward.


I entered the world of automotive sales in 2014, and after nearly a decade, I decided to leave it entirely and start a new career away from the industry. Although the decision had been years in the making, it wasn't until recently that I started to make strides to leave. Having witnessed the car market in various forms, I have noticed that increasing interest rates, inflated prices, and an uncertain economic future have hurt the car market beyond the breaking point for many that work in it.


I have often felt that car salesmen are the canaries in the mines regarding the economy. We are often the first to feel any struggles in the market since a car is one of the largest purchases for many people and is often the first planned purchase to be postponed until the market is more favorable. Car salesmen struggled during the 2008 collapse, during the inventory shortages of the Covid-19 pandemic, and most recently, with the sudden surge in inflation. I am thankful that I have the resources, skills, and education to make the leap out of the industry, but many do not have the same luxuries and will struggle in the coming years.


According to a recent report by JD Power, new vehicle sales have fallen for the fifth straight year, with total sales in 2020 down nearly 15% from their peak in 2015. This decline can be attributed to several factors, including the rising cost of new vehicles and higher interest rates.


One of the primary factors contributing to the decline in new car sales is the rising cost of vehicles. As automakers have added more features and technology to their vehicles, the average price of a new car has increased significantly over the past decade. Since 2021, I've witnessed the MSRP of the vehicles increase by about $7,000 directly from the manufacturer. There were even cases where I had the MSRP of a custom vehicle order raise as much as $2,000 by the time it arrived at the dealership. According to Kelley Blue Book, the average price of a new car in the United States is now over $40,000, a figure that is simply too high for many consumers to afford.


In addition to the high price of new cars, interest rates are also making it more difficult for buyers to make a purchase. As interest rates rise, the cost of financing a new car becomes more expensive, and buyers are less likely to take on the additional debt required to make a purchase. This is especially true for buyers with less-than-perfect credit, who may find it nearly impossible to secure financing for a new car.


The decline in new car sales has had a ripple effect throughout the automotive industry, impacting not just automakers but also dealerships, suppliers, and other businesses that rely on the new car market. Many businesses are struggling to find a way to adapt to these changing market conditions, and some have been forced to close their doors as a result.


Despite these challenges, there are still opportunities for the automotive industry to recover and thrive. Some automakers are turning to alternative fuel vehicles, such as electric and hybrid cars, which may appeal to buyers looking for a more environmentally friendly option. Others are exploring new business models, such as subscription-based services, that may help attract a wider range of consumers.


In the end, the future of the new car market remains uncertain, but it is clear that the industry must find a way to adapt to consumers' changing needs and preferences. Whether through new technologies, innovative business models, or other strategies, the automotive industry must find a way to win back the trust and loyalty of buyers in order to survive and thrive in the years to come.

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