Average New Car Transactions To Surpass $50,000: Toyota Sales Boss

As the old saying goes—when demand exceeds supply, you’ll have a hard time.

byLewin Day|
DEERFIELD BEACH, FL - OCTOBER 02:  Natalie Pena (L) shows vehicles to Ruben Mendoza as he shops for vehicles at the Toyota of Deerfield dealership on the day that Warren Buffett's Berkshire Hathaway announced it was acquiring the Van Tuyl Group the owner of the dealership on October 2, 2014 in Deerfield Beach, Florida. With the acquisition Buffett gets the largest privately held chain of auto dealerships.  (Photo by Joe Raedle/Getty Images)
DEERFIELD BEACH, FL – OCTOBER 02: Natalie Pena (L) shows vehicles to Ruben Mendoza as he shops for vehicles at the Toyota of Deerfield dealership on the day that Warren Buffett’s Berkshire Hathaway announced it was acquiring the Van Tuyl Group the owner of the dealership on October 2, 2014 in Deerfield Beach, Florida. With the acquisition Buffett gets the largest privately held chain of auto dealerships. (Photo by Joe Raedle/Getty Images).
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The pandemic and resulting chip shortage threw the entire car industry for a loop. Prices of new cars spiraled to new heights and used prices followed close behind them. According to executives at Toyota, the climb isn't over yet.

Jack Hollis, head of sales for Toyota's North American arm, has been around the block a few times since joining the company in 1992. He's got the experience and knowledge to identify sales trends in the auto industry. Speaking to Automotive News, Hollis stated he fully expects the average transaction price for new vehicles to break the $50,000 barrier. What's more, he expects prices to continue to rise beyond that level.

Driving this rise, Hollis believes, is consumer demand. Absent of supply constraints, he suggests that the auto industry could sell anywhere from 16.7 to 17 million vehicles in the US in 2023. "The only thing holding us back is the totality of the supply chain and the fragility of it, because we're not back to normal anywhere globally," said Hollis.

Realistically, projections are that 15 million vehicles will be sold. That shortfall of 2 million vehicles would add to pent-up demand for new vehicles from previous years. This could sit at up to 6 million, given low production figures due to the chip shortage which started in 2020. Until that's solved, prices will remain elevated. It's the basic law of supply and demand.

Inflation isn't helping the matter, either. Raw material costs have risen substantially, according to Bob Young, Toyota's vice president of purchasing supplier development. "The inflationary pressures really are driving all of us to work more aggressively and collaboratively on cost reduction," said Young. Relief isn't yet on the horizon, with Young suggesting any price drops on the supplier side wouldn't flow on to customers until 2024.

For context, the median income in the USA was $45,470 in 2021. Meanwhile, contemporary financial advice would suggest spending no more than 15% of one's monthly income on a car. That clocks out to roughly $568 a month for a car payment. Thus, if you're an average person on a median salary, and you want to buy the average new car, you'll be looking at a 10-year loan term. That's what many financial advisors would call "a bad idea."

We've been charting this story for some time now. As recently as October 2021, the new record price was just $45,031. Meanwhile, in January this year, it spiked up to $49,507, already perilously close to that $50,000 magic number.

The overall theme here is that new car prices seem unlikely to cool down in the short term. You'd best make sure your piggy bank is bulging if you want to purchase new under the current climate.

Got a tip? Let the author know: lewin@thedrive.com

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