Burning Dollars: The Average Price for a Brand-New Car Just Surpassed $40,000

Buying a brand-new vehicle is almost always a massive financial undertaking. Over the last few years, prices for brand-new cars have risen alarmingly quickly. As the auto industry moves away from sedans onto more expensive SUVs, prices will likely continue to increase. According to Edmunds via USA Today, the average price for a brand-new car surpassed $40,000 for the first time in December 2020.

How much does an average brand-new car cost?

An image of a 2021 Ford F-150 outdoors.
2021 Ford F-150 Hybrid | Ford

As brand-new cars grow in size and offer more standard tech and safety features, their base price seemingly only grows. According to USA Today, the average price for a brand-new vehicle in the fourth quarter of 2020 was $40,179. In December alone, the average price was $40,573, setting a record for the U.S. auto market.

As sales begin to recover from the global pandemic’s effects, USA Today reports that there is an unusual situation developing. According to Jessica Caldwell, executive director of insights at Edmunds, “It’s almost like we have two different countries within this country of people who are buying new houses, buying new cars, versus other folks who are perhaps in the service industry and are struggling.”

According to RoadShow, the increase in price plenty to do with the average buyer’s vehicle preference. RoadShow reports that most brand-new car buyers are interested in purchasing more expensive pickup trucks and SUVs. Additionally, 2020 saw a shortage in the supply of new vehicles, driving prices up significantly. When you combine these various factors, it is clear to see why brand-new cars are so expensive.

How are people paying for these expensive machines?

The 2021 Honda Accord is the brand's midsize sedan.
2021 Honda Accord | Honda

While a brand-new car’s price may be increasing rapidly, wages aren’t exactly keeping up with that growth. As a result, the average car buyer turns to clever financing deals to afford these expensive brand-new cars.

According to USA Today, the average brand-new vehicle financing deal saw borrowers take out $35,373. This figure represents a 5.5 percent increase from the fourth quarter of 2019. To make up the difference, brand-new car buyers reportedly paid an average down payment of $4,734. This second figure marks a 9.4 percent increase from the same time in 2019.

According to USA Today, there are two main explanations behind this financing trend. The first has to do with very low-interest rates, allowing buyers to borrow more while having to pay less effectively over time. The second reason for this brand-new car price increase has to do with luxury-car buyers. According to USA Today, the fourth quarter is when most luxury-car buyers pull the trigger on their brand-new vehicle.

Regardless, the average monthly payment for a brand-new car is now $581, marking a 1.9 percent increase from 2019.

What are people buying?

An image of a 2021 Hyundai Palisade on the road.
2021 Hyundai Palisade | Hyundai

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It won’t surprise you to learn what these brand-new car buyers choose at dealerships across the country. According to USA Today, SUVs accounted for around half of all brand-new car sales. Pickup trucks don’t fall far behind with a 20 percent market share. As a result, it makes sense why carmakers have begun phasing out cheaper sedan and hatchback models.

According to USA Today citing Scott Keogh, CEO of VW U.S., large SUVs have significantly higher profit margins than smaller vehicles. As a result, it is not surprising to see automakers cater to these expensive trends, given that it helps their overall bottom line.