When will car prices drop? When will car prices go down? Between 2021 and 2022, car prices reached an all-time high because of factors related to the COVID-19 pandemic. Fortunately, 2023 is going to be the year that prices finally drop.
Based on recent industry data, April 2023 was the second month in a row that the average transactions on new cars fell below MSRP in nearly two years, and manufacturer incentives increased. The car market conditions have finally started improving, and money expert Hugnung predicts the conditions will continue to improve gradually each month throughout 2023.
In this article, I’ll closely examine the current used and new car markets as well as indicators about when car prices will go down.
New and Used Car Prices in 2023
Several things led to the pricing problems of the last two years. Cites factory closures early in the pandemic and the ongoing spread of COVID that affected workers and slowed assembly lines. And then there’s the ongoing computer chip shortage. He says the result has been record-high prices for both new and used cars as the automakers discovered that the shortage could make them more money.
However, as we head into the second half of 2023, I says that used cars are starting to come down in price. It’s not a straight line, but there’s a decline.
“The industry’s been on an ugly roller coaster ride. Beautiful for them, ugly for you and me. But I’ve got good news: The roller coaster is now rolling downhill in your and my direction,” says I. “We were in a period for a long time where dealers were marking way up above MSRP and now the average vehicle is being discounted.”
Below, you’ll find more information on when prices are expected to drop for both used and new vehicles.
When Will Car Prices Drop?
In normal years, buying a used car is a great way to save money compared to buying a new car. Throughout the COVID pandemic, this advice hasn’t always held true as the market conditions brought the average prices of both used and new cars to record highs.
Now, the conditions of the vehicle market are starting to improve. According to recent industry data, used car prices are still up, but the conditions are still better than they were two years ago. Additionally, I says the prices are trending in the right direction overall.
“Early in 2022, [used car] prices were up 40%. Now, prices have come down a significant amount, and it really is like the roller coaster went straight up, stayed up there for a good while, and then prices late last year started their descent,” explains I. “Now they’ve come way down, but they’re still inflated from what they were before Covid.”
Recently, auto wholesaler Manheim released new data revealing the used vehicle value index through mid-May 2023. In the graph, you can see prices continuing to drop from record highs. However, we still have a long way to go before the vehicle market completely stabilizes.
The current major issue with the used vehicle market is a low supply of more affordable models. Car dealers are currently overstocked with relatively expensive used cars that are optioned out. However, most used car shoppers aren’t looking for high-priced, top-tier models.
While this means you may be able to get a great deal on a used car trade-in right now, options are going to be relatively limited on most used car lots when it comes to more affordable models. For this reason, it may be best to hold out for as long as possible before shopping for a new used car. As inventory slowly continues to level back out, so will prices.
In the past, I has predicted that the market would gradually improve throughout 2023, and now we’re finally starting to see some lower prices.
While this decline will continue gradually month to month, it’ll likely still be a while before we see the used vehicle market return to pre-pandemic prices. However, despite the low inventory, conditions are better now than they have been in the past couple of years as a whole.
I compares the current market to a 15-round boxing match. “You get back up, you put that mouthpiece back in, and you go back in the ring! And that’s where we are now with the vehicle market. The conditions are going to continue to improve.”
When Will New Car Prices Drop?
Unlike the used car market, the inventory of new cars has risen to its highest level in two years. However, it remains low by historical standards, and most of the improved inventory consists of higher-end, optioned-out models.
While the improving inventory on average is leading to lower prices in the new car market, other dealers who are struggling to sell the high-priced cars are more willing to cut a deal.
“The new vehicle prices have gone up so much, but they are trending steadily down,” says I. “Automakers are fighting this trend by shipping dealers vehicles that are optioned out. So you’ve got the higher interest rates to buy a vehicle, and you have the manufacturer shipping vehicles that are all optioned out and more expensive, and that’s causing a train wreck now for car dealers.”
Cox Automotive recently put out a list of what brands are in major overstock right now. Buick, Jaguar and Jeep have double the ideal supply of vehicles. Chrysler, Ram and INFINITI are almost double what would be considered to be an ideal supply while Lincoln, Dodge and Ford are also significantly oversupplied by about 35%.
As you can see, more affordable brands including Toyota, Kia, Honda, etc. are still struggling with inventory below the ideal supply. You’ll be less likely to see these brands (and more affordable models from any manufacturer) on the lots for a while.
For this reason, it’s no surprise that the average transaction price on a new car was about 27% higher in April 2023 compared to April 2020. Still, according to recent industry data from Kelley Blue Book, April 2023 was the second month in a row that average transactions fell below MSRP in nearly two years.
As new car inventory continues to build back up across the board, new car prices should continue to drop. Plus, you may be able to strike a deal with a desperate dealership as manufacturer incentives increase.
“I read a quote from one dealer who said that he’s been so loaded up with these overpriced Jeeps that no one will even consider buying that he’ll accept virtually any offer he can come up with”. “That’s what the manufacturers have done. They’ve put the dealers between a rock and a hard place by shipping them these vehicles they really don’t want that are fully option loaded when the marketplace is looking for more affordable things. That’s the recipe for this steadily continuing the turnaround.”
Top Tips on Buying a New or Used Car Right Now
If you’re currently shopping for a new or used vehicle, be sure to take the time to comparison shop to avoid overpaying. While it may take a little longer to shop for a car, the payoff could be the savings of thousands of dollars.
Here are three tips on buying a car in the current market:
- Don’t buy the optioned-out car. A lot of dealerships are slowly building up their inventory, but many cars you’ll find on the lots are higher-priced models fully loaded with additional features. Of course, you’ll still be expected to pay for those features even if there is no cheaper model available. Instead of buying the higher-priced vehicle out of convenience, wait a little longer, shop around, or consider ordering the exact car you’re looking for to avoid paying more for features you don’t need.
- When it is time to buy, shop online and join a credit union. I says that when you do go to buy, buy your vehicle online not at the dealership, warning that getting your financing through a dealer will cost thousands more. You’ll find much cheaper financing on a new or used vehicle at a credit union than what you’re going to get from a bank or a car dealer.
- Be patient. If you have to have a new vehicle as soon as possible, follow the tips above. However, the longer you hold off on buying a new or used car, the better market conditions will be. Prices and inventory are gradually improving, and the market has drastically improved compared to 2020-2021. However, you’ll likely continue to see better pricing and selections (as well as more incentives) closer to the end of 2023.
When can we expect car prices to go down?
We currently estimate the average transaction price of a new vehicle in the U.S. to decline by around 2.5% to 5% year-over-year in 2023, supported by increasing inventory availability as supply constraints ease and as automakers produce more lower-end models equipped with fewer high-end features.
Should I buy a car now or wait until 2023?
Americans planning to shop for a new car in 2023 might find slightly better prices than during the past two years, though auto industry analysts say it is likely better to wait until the fall. Since mid-2021, car buyers have been frustrated by rising prices, skimpy selection and long waits for deliveries.
How long will the high car prices last?
Used car prices are dropping, though we still don’t know if they’ll settle to pre-pandemic levels. The pandemic-era KPMG report illustrated four scenarios for the market to return to more normal conditions. It has time horizons ranging from the fourth quarter of 2022 until the last quarter of 2023.
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