This is a good thing for shoppers, if you can afford a new vehicle.
During the craziness of the covid pandemic a unique situation arose where buyers were so desperate they paid ever-increasing prices for both new and used vehicles. Books could and probably will be written delving into the many factors which helped drive car inflation, but the reality is those days are now behind us despite automakers, dealerships, and their allies in the media trying to convince us otherwise.
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The evidence of car prices eroding is out there, for those who want to see it. One comes via LMC Automotive, which points out that the growing recession is helping to eat into demand for new vehicles. At the same time, production numbers for new vehicles are steadily growing despite efforts by some OEMs to keep those down.
As I’ve pointed out before, LMC says all it takes is for some automakers to move to scoop up more market share by increasing production. We’ve already seen some overtures in that direction, so while GM and others try keeping supply low so they can maintain wide profit margins, eventually they’ll have to cave as competitors begin eating their lunch on overall volume. After all, even Ferrari and Lamborghini are concerned with sales volume.
LMC predicts the increase in vehicle supply and falling demand will intersect no sooner than the latter part of this year. The timing is, of course, debatable and subject to intervening factors which might be impossible to predict. That said, it looks almost inevitable that things will return to “normal” in the car market.
One of those events many didn’t predict was the banking crisis the US and Europe is currently facing. With Silicon Valley Bank and Signature Bank failing while other regional banks and even Credit Suisse struggle, there’s no telling how the financial market upheavals could affect not only automakers but also suppliers, dealerships, etc.
Another sign that the days of dealerships being in the driver’s seat for sales is waning comes via J.D. Power and LMC Automotive, which say only 31% of new cars sold in February went for over MSRP. In July 2022 that figure was 48%, showing that the days of customers lining up ready to pay exorbitant prices for a new vehicle are on the way out.
Those two firms also found the majority of models selling for over MSRP were luxury lines. In fact, in the top 10 vehicles selling for above MSRP there was only one mass-market model, the Jeep Wrangler Unlimited. People are feeling the financial pinch with the combined forces of inflation, layoffs, and rising lending standards.
On that last item, Statista says the average interest rate on a 60-month car loan is now at 6.3% versus just 4% a year ago. That means shoppers can afford less car if they’re financing the purchase, something that’s far more common for those looking at non-luxury models.
So things are changing in the car market as things are changing economically and in the financial markets. Just how quickly the shift happens and how far the pendulum swings the other way remains to be seen.
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