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 vehiclesand 10% to 20% for used vehicles, according to a report in Novemberfrom 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 ofdata and analytics atJ.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, witha recent drop of more than 3%, according toU.S. Bureau of Labor Statistics data. The average used car sold for $27,156 last month, a1.5% decrease from October, according toKelley Blue Book.
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New-car prices, meanwhile, are still historically high. Their average transaction pricehit a record $47,681in November,accordingto car pricing siteEdmunds. But it was also the first time since July 2021 that the average paid price fell below the average manufacturer's suggested retail price, orMSRP.When that happens, it signals that some buyers are able to negotiate a lower price forvehicles.
Rising interest rates, however, could offset the decline in vehicle prices, meaning Americans who finance their cars may not see as much, if any, 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 arecord $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.
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Why are car prices so high?
New-car prices have risen because of increased costs of raw materials andshortages of chips for computers that control a vehicle's gas pedal, transmissionand touch screen. The rise in new-car prices hasfueledthe demand for less expensive used vehicles, according to 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 likecompact and midsize cars have increased this year amid consumer 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, saidBenjamin Preston, an automotive reporter at Consumer Reports.
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What is the cheapest month to buy a car?
The final months of the year –October, November and December –typically seethe deepest car discounts, anddeals on new cars usually coincide with the introduction of new models, according to Edmunds,which makescurrent cars and trucks less desirable.
December typically has the best deals, with the biggest discounts available on New Year's Eve, according to CARFAX. But there are other goodtimes 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.
If buyers can wait, they can expect to see lower prices next year than today,Jominy said. But shoppers don't necessarilyhave to wait to get a decent price because many automakers are starting to offer incentives.
Consumer Reports advises consumers to buy a car when they need it, Preston said.
"If you need a car now, you should get a car now," Preston said. "You can certainly help yourself by doing a lot of research and figuring out what you want, what you need. And then sort of finding alternatives."
How can I get the best car deal?
The chip shortage and record-high prices have changed the typical guidancefor car shoppingin 2022, but buyers still have time to snag a good deal.
Experts said shoppers shouldcasta wide net and be flexible when searching for a vehicle. Buyers should also negotiate at the dealership, using the sticker price as a starting point. (Here are more tips on scoring a year-end car deal this December.)
