Car sales expected to rise this year as inventories improve despite high prices, interest rates

In some ways, this year's car-buying season is expected to be a return to normalcy with improved inventory and stabilizing prices.

Even the Twin Cities Auto Show is back at the Minneapolis Convention Center starting Friday after two years at the State Fairgrounds because of the COVID-19 pandemic.

But other aspects are far from usual. Like the average cost of a new car, now $47,680, the average monthly payment, $731, and the average annual percentage rate, 7%.

The latter is up from 4.4% a year ago in February, according to Joseph Yoon, a consumer insights analyst for Edmunds.

Still, car dealers are optimistic about this year's potential sales, especially with supply coming back.

"We think there's a lot of pent up demand out there," said Scott Lambert, president of the Greater Metropolitan Automobile Dealers Association of Minnesota, which puts on the annual auto show. "Interest rates are increasing, and that's harder on consumers. But people have been waiting to purchase a new car."

Many forecasts are predicting a single-digit percentage increase in auto sales this year after two years of depressed sales because of pandemic-related supply chain issues.

At the same time, economic uncertainty and higher interest rates will likely keep some would-be buyers on the sidelines.

"The thing that was really holding us back is getting better," Yoon said of inventory levels. "But now the money is really expensive. That really hurts people's decisionmaking more than anything else."

February's average new car transaction of $47,680 was down from a high of $48,516 in December as discounts from dealers have started to return, he said. Consumers are also no longer paying above sticker price as much as they had been the last year and half. But prices are still near record highs.

Most people don't look at the full cost of the vehicle as much as how much they will pay every month, Yoon added. And that is out of reach for many consumers with February's average monthly payment of $731.

That's due to higher car prices and because the Federal Reserve has been hiking interest rates to bring down inflation.

"That's so much money that you have to pay in interest, especially with how expensive cars are now," Yoon said.

He added that inventory is manufacturer-specific, with some carmakers having plenty available stock while others are still spotty.

Tom Leonard, president and co-owner of St. Paul-based Fury Motors, said he's seeing inventory improve.

He attended a new car announcement show last week where executives said that aside from a few exceptions, the supply chain issues are behind them.

"That drew a rousing applause from the 2,600 dealers there," Leonard said. "And we feel it. We have inventory coming in. You don't have a choice of just one when you come on to the lot today."

If shoppers don't see what they want on the lot, orders also aren't taking as long, he added.

Consumers looking for more affordable new cars were often out of luck the past couple of years with more expensive options more readily available. But lower-priced cars are now in better stock, Leonard said.

At the same time, he's seeing some rebates and incentives, which had disappeared in the past couple years, start to come back.

The Twin Cities Auto Show, celebrating its 50th year, has acutely felt inventory challenges in recent years. While it was still a challenge this year, Lambert said it was a bit easier to source the nearly 500 or so vehicles on display through April 8.

As a result, the show this year will have a much bigger assortment of electric vehicles, including the GMC Hummer EV and Cadillac's new electric vehicles.

"They've been a curiosity of previous shows, but this year, there's going to be electric vehicles in every display," including several models attendees will be able to test drive, Lambert said.

It will also have a bigger selection of luxury vehicles than the past couple years with Maseratis, Aston Martins and Bentleys. Trucks, which are especially popular in Minnesota, will also have a big presence.

He expects attendance to be up this year, perhaps not back to pre-pandemic levels, but certainly higher than the past couple of years.

The auto show, which is typically the biggest consumer show of the year at the convention center and the biggest show in the Upper Midwest, often attracts more than 100,000 people.

It's not a selling show, so the focus is both practical and aspirational.

"You come to kick tires on vehicles you need, but it's also the license to dream," Lambert said.

Arne Garvander is among those dreaming of a new car.

The Richfield resident went to a dealership last year to see what was out there, but didn't find any of the super-small cars he's looking for. Now that inventories have improved, he's planning to try again in the coming months.

In the meantime, though, his 13-year-old Toyota Yaris is holding up fine.

Where: Minneapolis Convention Center

Dates: Friday, March 31 through Saturday, April 8, 2023

Hours: 10 a.m. to 9 p.m. Fridays, Saturdays, Wednesday, Thursday; 4 p.m. to 9 p.m. Monday and Tuesday; 10 a.m. to 7 p.m. Sunday

Tickets: $12 online for adults and $17 onsite; $6 for teens, free for children 10 and under. Some discounts available some days.

For more information go to https://twincitiesautoshow.com/