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Honda, Kia’s consistent vehicle prices are ‘trading on the strength of their brand’: Expert

Kelley Blue Book Executive Editor Brian Moody discusses the state of the car market and breaks down how the supply and demand dynamics surrounding car inventories are leading to consistent prices for leading brands such as Honda and Kia.

Video transcript

- New vehicle prices fell below sticker price in March for the first time in nearly two years. That's according to Kelley Blue Book. Last month, consumers paid on average $171 below sticker price for their cars. Compare that to March of 2022 when consumers paid on average $1,000 over sticker price. Well, let's dive into the data with Brian Moody, Kelley Blue Book executive director. Brian, thank you for joining us today. So, clearly, a very different picture from where we were a year ago. Talk about what broke this 20-month streak.

BRIAN MOODY: Well, it mostly has to do with supply. So the inventory is up. And when that's the case, you have prices come down a little bit. But it's also helped by the fact that with that inventory, there's also a little bit of incentives by the automakers. So when they offer a little bit of a discount, that helps the average transaction price come down as well.

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- So it was an interesting dynamic during the pandemic because those dealers had low inventory. But that drove the sticker price way up. Do you expect this to be the new model now that inventories-- are they going to stay high?

BRIAN MOODY: I think a lot of dealers have realized they don't need to stock as much inventory as they once did. So I don't know if inventory is going to stay high. But one thing we don't have now that we used to have was simply ceasing of producing cars. If you remember right, some manufacturers cut production because they were afraid they wouldn't have cars to sell. Or they cut production so they could make medical equipment. We're not going to have that. So that's one thing that's a factor we can kind of remove. So we have high supply. Will we have the demand going forward because when demand is there, then prices can still remain high even when there is lots of supply.

- And Brian, in your notes, looking at the luxury buyers contributing to prices staying elevated for longer, at some point are they going to pull back so that we could see prices come down more?

BRIAN MOODY: I don't know. That's a great point. And so that's been the case for quite some time is what we've seen is the luxury buyers-- at one point, it's nearly 20% of the market. That's very high compared to, say, 2018 when it would have been more like 13% or 14%. Those luxury buyers, meaning that percentage, 18% to 19%, of new car buyers are opting for luxury brands. That pushes the average transaction price of everything up. So, yes, it does have an impact.

One thing we're noting is that luxury vehicles are still transacting over MSRP. It's largely the non-luxury vehicles that are transacting under MSRP, even if just barely. And there are maybe just a couple of exceptions to that.

- When it comes to EVs, Elon Musk has dominated the headlines there with several price cuts. What did you see industrywide and why?

BRIAN MOODY: Well, at first, we saw electric car prices come down somewhat. But now we're seeing them go back up. And that despite what you just pointed out, which was that Tesla cut prices quite a bit. And Tesla is the number one seller of electric cars in the US. In fact, they're the number one luxury seller of cars in the US. But the price of electric cars is trending slightly upward. And here's why we think that is. Because there are just more choices coming online, more models for Mercedes-Benz, more models from brands like Lucid and Rivian. And those are somewhat pricey vehicles.

- And the auto incentives offered by manufacturers still at historic lows here. What do you think is going to incentivize them? Or are they currently in a position where they just don't have to offer incentives?

BRIAN MOODY: Well, so here's a good way to think about it. When inventory goes up, the incentives can go up. When the inventory goes down, the incentives can go down. They don't need to offer the discount. But as you pointed out, they are at historic lows. But they're trending upward. So right now, as part of a transaction price, you might find a roughly $1,500 discount on average as part of a manufacturer-provided incentive program. So historically low, but trending up.

- So your data showed prices coming down, but not necessarily for Honda nor Kia. Why?

BRIAN MOODY: Right. I think the answer to that is kind of simple. They make great cars that really resonate with people. They have lots of new models that they have very compelling designs. They have a reputation for being good vehicles. And I think that those prices are trading on the strength of their brand because, honestly, some of those cars, they aren't that much different than what you might get from some other manufacturer. But the names of those vehicles, the brand Honda and Kia, it means something to someone. And so, therefore, the people who are out there shopping for that are saying, I'm OK paying a little bit more because I know that this is a good quality car.

- So for people who are in the market for a new car, they're seeing some of these prices come down, but also keeping one eye on some of these loan interest rates continuing to tick up. What is the best strategy right now if you're in the market for a car?

BRIAN MOODY: If you're in the market for a car, look at new and used both equally. It could be that the model you're looking for, there's a better deal to be had new or a better deal to be had used. Look at both equally. Also, put as much money as you can down because the interest rates are not necessarily in your favor. And we're still seeing credit becoming relatively difficult to get, although not impossible of course.

They want to sell you a car. They want to sell you a loan product. So they're going to find a way. I would just come up with as much money as you can put down. Finance for the shortest period of time possible. And stay within your budget. Don't get tempted by monthly payments. Anybody can sell you a Lamborghini for $500 a month. How many months? That's the question. Keep that in mind.

- I don't have to worry much about the Lamborghini payments. But I get the sentiment indeed. Brian Moody, Kelly Blue Book--

BRIAN MOODY: You and me both. You and me both.

- You got that. Thank you, sir. Appreciate it.