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Average new car price absurdity continues, blasts past $40,000

Buyers paid record prices in the month of June.

Car dealer
Americans are ready to get spendy with new cars.
Bloomberg/Getty Images

You may recall we reported on the average new car price crossing the $40,000 mark back in December 2020. However, Friday's forecast from J.D. Power is remarkable because December auto sales often show inflated dollar figures simply due to increased luxury vehicle purchases: Lexus' "December to Remember" and all that jazz. So for the average new car sold in June of 2021 to cost $40,206 is -- frankly -- ridiculous. 

J.D. Power's June forecast showed the expected average transaction price will increase to the $40,000-plus figure, which will be a new record. The ATP is up by $1,667 from May of this year, the previous record by this measure. Vehicle prices, on average, are expected to be 15% higher than in June 2020, mostly due to automakers pulling back on incentives. There's no need to incentivize a car purchase with all the pent-up demand following the pandemic, especially with inventory squeezed by the ongoing chip shortage. Incentive spending will be down about 6%, or nearly $2,000, according to the monthly forecast.

The forecast expects retail sales of new vehicles (that excludes vehicles sold to fleets) to climb by 12.4% compared to June 2020, and for a nonpandemic-related baseline, sales should increase by 0.3% compared to June 2019. For the first half of 2021, sales will increase by 36% compared to the first part of 2020. Again, compared to a time without COVID-19 in our lives, J.D. Power expects an 11% increase over 2019 when everything's adjusted for the number of selling days.

All of this has put a strain on many people who simply can't afford a new car, as prices push them out of the market. Used car prices are scalding hot, too, and will likely show a 29% increase, according to the forecast for June. J.D. Power does say, however, that used car prices will start to trend downward quite soon -- echoing earlier data released this week. Wholesale auction prices peaked this month, which will lead to price decreases for preowned cars in the weeks to come.

It's not all great news for automakers and dealers, though, who continue to rake in record profits in this market. J.D. Power witnessed the first "material effect" of new vehicle inventory shortages. "While the strong results in June will cap an extraordinary first half of the year, the effect of fewer vehicles in inventory at dealerships is finally starting to have a material effect on aggregate industry sales volumes, as eager buyers struggle to find their desired new vehicle," Thomas King, J.D. Power data and analytics president, said. "Too few vehicles in inventory is preventing the industry sustaining the phenomenal sales pace seen in recent months."