There’s good news: The average new car price fell below sticker in March, stayed there in April and May. And there’s bad news: Used car prices remain stubbornly high. We’ll explain.
Bottom line here is this: New car shoppers can find a good deal right now. So if you’re in the market, this is your window of opportunity. Here’s why: New car prices have been falling as manufacturers build up their inventory of vehicles for the first time in two years. The story with used car shoppers is different. Used car prices remain stubbornly high. However, they may –just may — see a brief buying opportunity through early summer, but experts warn that we shouldn’t expect this easing in used car prices to last. So if you’re buying a car right now, digging deep for a new car may be a better value than a used vehicle. More on that in a moment.
Yes, after a couple of convulsive years in the auto business, new car prices are beginning to move downward. In fact, Kia and Honda dealers rare the only (non-luxury) brands pricing their vehicles over MSRP. So what happened? Well, certainly a cascade of incentives, hitting their highest point in a year, had a lot to do with the easing in price levels. That’s the good news and yes, there’s not-so-good news. Used car prices which have been high for many months, rose again last month. And more bad news if you’re not going to shell out new-car money — the long-term picture for used car prices remains bleak, and experts predict the current situation will last for at least a few years.
This all means, of course that if you have a good trade-in, rising used car values and falling new car prices are the best-case scenarios for you.
Will The Near Future Bring A Return To Normal?
So what can we expect in the near future? In April, the average new car price was $48,275 — virtually unchanged from March’s average, signaling that the curve of new car pricing had begun to flattened. Credit supply and demand as the single biggest factor in determining the price of any new car. Manufacturers are finally starting to rebuild inventory from historic lows triggered by the COVID-19 pandemic and a worldwide microchip shortage. The industry is getting back to normal…slowly.
Welcome Back, Incentives!
As you’d expect, higher inventories mean the return of incentives. “Now that inventory levels are starting to climb and manufacturers are increasing incentives, the market will respond accordingly,” says Rebecca Rydzewski, research manager of Economic and Industry Insights for Cox Automotive. And what’s more, some pickup truck makers actually have too many vehicles to sell — Ford, GMC, and Chevy report more than 80 days’ inventory, and some have begun discounting eliminate overstock. Unfortunately, price isn’t the only consideration for most shoppers. Interest rates remain high thanks to a long round of rate increases from the Federal Reserve determined to rein in inflation. And as Honda and Kia dealers struggle to keep their popular models in stock, most of their vehicles still sell over the manufacturer’s MSRP.
The Used Car Market: Prices Remain Stubbornly High.
While new car prices have flattened, he used car market haven’t budged much at all. In April, Americans paid $586 more for the average new car than they did in March.
Industry watchers note that used car prices will likely fall soon and we expect to see a price drop any day now. But it won’t last. Waves that hit the new car market hit the used car market years later. All those factory closures early in the COVID-19 pandemic, the microchip shortage, and Americans buying their cars at the end of their leases mean more than 8 million fewer used cars reaching the market for the next few years. That means sustained price drops won’t be coming for a long time.
Also, it’s still hard to find the least expensive used cars. Dealers have a limited supply of the higher-mileage cars they can sell for less than $15,000.
And by the way, if you hope to find an older vehicle and your budget is less than $15,000, these vehicles remain in short supply. More would-be new car shoppers started buying up the available used cars. So, the shortage of lower-priced cars is in part due to a lack of inventory.
The Supply Chain
A worldwide shortage of microchips drove car prices higher for much of the last two years. But it has begun to ease. Still, the new car inventory may not return to normal once it recovers. Automakers and dealer groups learned that keeping the supply of cars low allows them to charge more for cars. The days of dealer stockpiles and hefty discounts may not fully return.
Though short-term trends are pushing new car prices down, automakers are focusing their efforts on building more premium cars. The era of the inexpensive car is disappearing.
A recent analysis finds that sales of cars priced at $25,000 or less have fallen by 78% in just five years. Five years ago, automakers offered 36 different new models in that price range. This year, they offer just 10 new models.
Meanwhile, those priced at $60,000 or higher have grown by 163% in the same period.
Around The Campfire…
Looks like new car shoppers are better off waiting for more price drops and incentive discounts to kick in during the second half of 2023. On the other hand, used car shoppers might want to move quickly while prices remain lower, industry experts tell us that prices could zoom back up any day now.
Moreover, several automakers have stated they plan to keep inventories lower indefinitely, maintaining high prices indefinitely. As a result, car prices may never return to a pre-pandemic “normal.”
