New-Car Prices Expected to Normalize by 2025

LAS VEGAS — New-car prices are projected to stabilize and become more affordable by 2025, according to Fabien Thierry, the head of consumer vehicle lending products at Bank of America. Speaking at the 2024 Auto Finance Summit in October, Thierry explained that the recovery of global supply chains and the normalization of inventory levels will help ease the upward pressure on vehicle prices, making cars more accessible to consumers.

Over the past few years, the automotive industry has faced significant challenges due to supply chain disruptions caused by the COVID-19 pandemic, semiconductor shortages, and global shipping delays. These issues contributed to reduced vehicle production, leading to limited inventory and skyrocketing prices for new cars.

“Supply chain bottlenecks have created an environment where demand far exceeds supply, which in turn has driven up vehicle prices,” Thierry noted. “However, as we move forward, these supply constraints are starting to resolve, and this is expected to have a positive impact on car prices.”

Thierry pointed out that the gradual normalization of the global supply chain has allowed manufacturers to ramp up production and replenish dealership inventories. With more vehicles available, competition among automakers is expected to increase, putting downward pressure on prices and bringing them closer to pre-pandemic levels.

“We’re already seeing signs of recovery in supply chains, and by 2025, the automotive market should experience a more balanced supply and demand dynamic. This will translate into more reasonable pricing for consumers,” he added.

The affordability of new cars has been a growing concern for many consumers, with prices reaching record highs in recent years. In addition to supply chain issues, inflation and rising interest rates have made car loans more expensive, further exacerbating the affordability challenge.

Thierry expressed optimism that by 2025, the combination of improved inventory levels and stabilizing interest rates will make it easier for consumers to finance vehicle purchases. “As supply improves, we expect to see a gradual reduction in the overall cost of new cars. This, along with more favorable lending conditions, should help ease the affordability constraints that many consumers are currently facing.”

Looking ahead, Thierry highlighted that the automotive industry is poised for a period of recovery and growth. While the short-term challenges of inflation and high interest rates remain, the long-term outlook is more optimistic as supply chain disruptions continue to resolve and consumer demand remains strong.

“By 2025, we should see a more stable automotive market where both manufacturers and consumers benefit from healthier inventory levels and more competitive pricing,” Thierry concluded.

As supply chains normalize and vehicle prices adjust, the future of the automotive market looks brighter, with more opportunities for consumers to find affordable new cars.