New Car Prices Keep Dropping

Estimated read time 4 min read

The old normal is eroding steadily.

During the pandemic, thanks to a combination of supply shortages and manufacturing snafus, both used and new car prices skyrocketed. Many people who felt the need to buy a vehicle during that odd time quickly learned they had little to no negotiating power, often paying well above MSRP for a vehicle as dealerships raked in the cash effortlessly. Those days have come to a close, despite some dealers still not acting like it, with new car prices continuing to fall.

Jeep has lost its magical charm.

The market corrections are causing some chaos in the market, and it’s no wonder. Kelley Blue Book found that between January and June of this year, the average price of a new car dropped $865. That might not sound like much but it constitutes the largest decrease in the first six months of the year for the past decade.

That’s a huge difference from the double-digit price gain in new vehicles just a year ago, showing just how rapidly the market has turned around. Edmunds and Cox Automotive have drawn similar conclusions, showing that the era of paying huge markups on new cars is over. In fact, Yahoo Finance is predicting a price war possibly starting later in 2023.

One key factor driving down the price of new cars is higher interest rates. Buyers are seeing their purchasing power greatly diminished, forcing them to buy less vehicle than they did back when money was cheaper to borrow.

Economic uncertainty isn’t helping, either. With layoffs affecting a growing number of employers, plus inflation pinching consumers everywhere they turn, the last thing a lot of people want to do is take on a new car payment. That’s especially true when the average monthly payment amount is $725 for the first quarter of 2023, according to Experian.

Dealerships aren’t dropping their pants to get rid of vehicles, yet. Instead, we’ve seen dealers storing excess inventory at off-site locations to maintain the appearance that they don’t have an overflowing stock. But the reality is those retailers that are trying to hold out and continue charging big money for cars, trucks, and SUVs will soon have to fall in line with the market or pay the ultimate price themselves.

Cox Automotive found that back in May new vehicle inventories were at a two-year high. That’s pushing prices at most dealers down. If people don’t jump at these initial deals, the discounts could become much deeper once winter rolls around.

Of course, some consumers who have been holding off on replacing their janky old car since the days of covid might not want to hold off any longer. While that’s their choice, we feel the best is yet to come as far as deals for new cars.

That pent-up demand from those who didn’t want to pay $10,000 or more over MSRP for a vehicle two years ago could explain why new car sales have been strong lately, with Q2 sales figures overall coming out strong. But once that factor bleeds out, those who can hold off even longer stand to save more as interest rates and other factors take their toll.

Electric vehicles are taking the biggest hit as the market in general takes a dive. Different automaker are seeing EVs pile up at dealerships and factory storage lots, something we’ve covered recently. Some wonder if demand for EVs won’t continue to fall because a level of market saturation has been realized.

All of this is great news for anyone who’s looking to buy a new vehicle, especially if they’re able to pay cash or put down a large amount up-front and borrow little. But in a few months the situation could be far better for shoppers.

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Steven Symes

Steven Symes is an accomplished automotive journalist with a passion for all things related to cars. His extensive knowledge and love for the automotive world shine through in his writing, which covers a diverse range of topics.

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    The Auto Wire

    […] new car sales have been strong for the past two-plus years, there’s no denying a downward trend is eroding demand. Meanwhile, used sales are picking up, shocking some who thought they would be […]

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