Report: Used-car prices are likely to dip in 2023
But rising interest rates could offset the decline
Car shoppers have faced sky-high prices for more than a year in part because of high demand and tight inventory. But 2023 may finally bring some relief.
As demand stabilizes and inventory improves, prices are expected to ease. Prices could drop up to 5% for new vehicles and 10% to 20% for used vehicles, according to a report in November from the bank J.P. Morgan.
Consumer research firm J.D. Power projects new-car prices will fall somewhere between 2% and 10% next year, according to Tyson Jominy, vice president of data and analytics at J.D. Power.
“As the inventory increases, we will expect to see prices come down for consumers, so it’s mostly good news,” he said, adding that buyers can expect to see the supply on dealer lots increase.
Used-car prices have fallen after surging in 2021, with a recent drop of more than 3%, according to U.S. Bureau of Labor Statistics data.
The average used car sold for $27,156 last month, a 1.5% decrease from October, according to a report by Kelley Blue Book.
New-car prices, meanwhile, are still historically high. Their average transaction price hit a record $47,681 in November, according to car pricing site Edmunds.
But it was also the first time since July 2021 that the average paid price fell below the average manufacturer’s suggested retail price, or MSRP. When that happens, it signals that some buyers are able to negotiate a lower price for vehicles.
Rising interest rates could offset the decline in prices, meaning Americans who finance their cars may not see as much relief.
“It’s tough to say how it will come out in the wash,” Jominy said. “But in general, it should be, on net, good for consumers when these prices come down.”
In November, the average interest paid over the life of a new-car loan reached a record $8,436, and the average interest paid over the life of a used-car loan reached an all-time high of $10,204, according to Edmunds.
New-car prices have risen because of increased costs of raw materials and shortages of chips for computers that control a vehicle’s gas pedal, transmission and touch screen.
The rise in new-car prices has fueled the demand for less expensive used vehicles, according to a report by J.P. Morgan.
“We estimate that half of the increase in new vehicle prices relates to the passing along of higher input costs, including raw material costs,” Ryan Brinkman, lead automotive equity research analyst at J.P. Morgan, said in the report.
The prices for traditionally cheaper options like compact and midsize cars have increased this year amid demand for affordable vehicles, according to Edmunds data.
Factors such as the war in Ukraine, which has exacerbated supply chain interruptions, and the chip shortage will ultimately determine how much prices will decline, said Benjamin Preston, an automotive reporter at Consumer Reports.
December typically has the best deals, with the biggest discounts available on New Year’s Eve, according to Carfax. But there are other good times to buy a vehicle if a consumer needs a car sooner.
The end of the month, end of the model year and holiday weekends are also usually a prime time to score a deal on a new car.