Economic pressures, shifting consumer preferences, and market trends are redefining how Americans approach car buying in 2024 and 2025.
The Evolving American Car Market
Buying a car has always been a significant financial decision for Americans. However, in 2024 and looking ahead to 2025, affordability concerns, high interest rates, and changing supply chain dynamics are making this choice even more complex. With the average price of a new car hitting record highs and used car prices fluctuating, more consumers are forced to weigh the benefits of new versus used vehicles more carefully than ever before.
Data from Statista reveals that U.S. passenger car sales have experienced fluctuations due to various economic factors. The ongoing affordability crisis and growing interest in used vehicles are reshaping the market. But will this trend continue in 2025?
New Car Sales: High Prices, Higher Barriers
Despite economic challenges, new car sales have shown resilience in 2024. A report from Reuters states that U.S. new vehicle sales reached 15.9 million units, marking a 2.2% increase from 2023. This growth is attributed to several factors:
- Improved Inventory: The supply chain disruptions of previous years are easing, increasing vehicle availability at dealerships.
- Manufacturer Incentives: Automakers are offering greater discounts, with the average incentive reaching $3,400 per vehicle by late 2024, as reported by the Wall Street Journal.
- Hybrid and EV Popularity: The demand for fuel-efficient vehicles has surged, particularly among hybrid models, which have seen increased production and adoption rates.
However, affordability remains a concern. Market analysis indicates that the average new car price is now $47,542, making it unattainable for many middle-class buyers. With the Federal Reserve maintaining high interest rates, financing new vehicles has become significantly more expensive.
Used Car Sales: The Affordable Alternative?
While new car prices remain high, used cars have become a preferred choice for budget-conscious buyers. Insights from Edmunds reveal that the average used car price was $27,177 in Q3 2024, significantly lower than new vehicles.
Why Are More Americans Choosing Used Cars?
- Depreciation Savings: New cars lose up to 20% of their value within the first year. Buying used allows consumers to avoid this steep depreciation.
- Lower Monthly Payments: With rising loan interest rates, financing a used car is much more manageable than financing a new one.
- Expanding Certified Pre-Owned (CPO) Programs: Automakers have bolstered their CPO offerings, making it easier for consumers to buy reliable used cars with warranties.
- Shifting Preferences Toward Older Models: A report from Marketplace highlights that buyers are increasingly looking for older, more affordable vehicles instead of newer ones with high-tech features.
Furthermore, research from AAA highlights that the total cost of owning a new car in 2024 averages $12,297 annually. In contrast, used cars offer significantly lower ownership costs, making them the smarter choice for many Americans.
The Growing Trend of Out-of-State Car Purchases
To save money, more consumers are considering buying vehicles from out of state, where taxes and fees may be lower. In certain states, buyers can save thousands by purchasing a car elsewhere and shipping it home.
Top 10 States with the Lowest Car Sales Taxes
Some states offer tax-friendly policies for car buyers, including:
- Alaska – 0% sales tax
- Delaware – 0% sales tax
- Montana – 0% sales tax
- New Hampshire – 0% sales tax
- Oregon – 0% sales tax
- Hawaii – 4% sales tax
- Wyoming – 4% sales tax
- North Carolina – 3% sales tax
- Colorado – 2.9% sales tax
- South Carolina – 5% sales tax (with a $500 cap on vehicle sales tax)
In contrast, high-tax states like Nevada (8.25%) and California (7.25%) impose significantly higher costs on car buyers. Those who purchase out-of-state vehicles may need to factor in registration fees, but the savings can still be substantial.
Shipping Your Out-of-State Car
When buying a vehicle from a state with lower taxes, consumers often need to have it shipped to their home state. Many auto transport companies provide this service, but car shipping prices can range from $500 to over $1,500, depending on factors such as distance, transport type, and vehicle size.
Future Outlook: What to Expect in 2025?
Looking ahead, industry analysts predict that total U.S. vehicle sales will reach 16.18 million units in 2025, a modest increase from 2024. However, several trends will influence the market:
- Continued Price Pressure: New car prices may remain high due to inflation and supply chain constraints.
- Interest Rate Sensitivity: If the Federal Reserve lowers interest rates in 2025, new car financing could become more accessible.
- Increased Used Car Availability: A surge in lease returns could expand the used car market, potentially lowering prices.
- Electrification Trends: With growing EV adoption, the used car market may see more affordable hybrid and electric vehicle options.
Which Option Is Best for You?
The choice between buying a new or used car in 2024 and 2025 depends on financial circumstances, personal preferences, and market conditions. New cars offer the latest technology and warranties, but they come with a hefty price tag. Used cars provide affordability, lower depreciation, and greater financing flexibility.
For those looking to maximize savings, buying out of state and researching shipping costs can offer additional financial advantages. As the market continues to evolve, consumers must stay informed and make strategic decisions to get the best value for their money.