We receive a lot of questions here at CarEdge, and one has been more frequent than others recently, “Are car prices going down?” That question has flooded our email inbox, community forum, and YouTube video comment section. The answer is: YES.
Both new and used car prices are finally coming back to “normal,” although they have a long way to go. In this article we’ll update you on both new and used car prices, and give you some guidance on how to negotiate the best price if you need to buy a car.
Let’s dive in.
Are car prices going down?
Again, the short is an emphatic “YES.” Both new and used car prices have dropped in 2022. Let’s get into the nitty gritty of how much they’ve fallen.
New Car Prices
New car prices have cooled off in 2022. After hitting a record high average transaction price of $47,243 in December of 2021, the average new car transaction price fell to $46,404 in January 2022.
Cox Automotive produces a new car “affordability index”, and that has declined as well. While the average new car price declined, interest rates jumped 17 basis points higher. As a result, the typical monthly payment for a new car declined 0.8% to $685 from what had been a record high of $690 in December.
Not every automaker’s prices are going down at the same rate. Mazda prices have continued to climb month-over-month, while other automakers, like General Motors, Honda, and Volkswagen have seen their new car prices decline.
Used Car Prices
Are used car prices going down too? Yes, they absolutely are.
With used cars it is important to remember that there are two prices; the wholesale price, and the retail price. So far in 2022 we have seen both wholesale and retail prices go down.
Wholesale used car prices have dropped about 5%. Retail used car prices have stayed about flat, however dealers are once again negotiating and discounting used cars if you know how to do it.
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Wholesale prices have decreased more rapidly than retail prices. From Black Book you can see that the week-over-week depreciation of used cars has increased more rapidly then previously expected. This is a good thing for prospective used car buyers!
Not all used cars are the same however. For example, full-size vans continue to appreciate week-over-week.
All segments of cars are declining in value week-over-week.
One of the most important indicators we analyze when assessing the used car market is “days to turn”. This is an industry metric that dealership’s measure to track their inventory. Car dealers do not pay cash for their inventory, instead they “floor plan” it. Just like you or I, the dealership finances the purchase of their inventory, and this means they pay interest on it each day it sits on the lot. A car dealer is more likely to negotiate on an “aged unit” (a car that has been on the lot for a while) than a brand new one, because the aged one has cut into their profit margin.
With all that in mind, data from Black Book shows that the number of days to “turn” (sell) a used car has increased dramatically. Pair this with rising interest rates, and you can quickly begin to see why dealers would be willing to negotiate on used cars once again.
When will car prices go back to normal?
While the most common question we receive is “are car prices going down,” the second most popular question is “when will car prices go back to normal?” The hard part about answering this question is that no one has a crystal ball, and it’s impossible to know just how bad the ongoing chip shortage still is.
That being said, it is obvious that consumer demand for new and used cars has softened. As a result, our expectation is that car prices will continue to go down in 2022, with a potential increase around tax return season (March and April). When will car prices go back to “normal” though is tough to say. Sadly, we think the new normal will be a world where new and used car prices are inflated relative to years past (2019).
New and used car prices may never return to 2019 levels. We feel this is particularly true on the new car side, since manufacturers have realized they do not need to spend as much money on incentives to sell their cars. Why would they ever discount like they did before if consumers continue to purchase?
Used car prices have a better chance of declining back to pre-pandemic levels, however you have to remember that used car prices increased over 40% in 2021, so it’s unlikely they will fall that much in a short period of time.
Is it a good time to buy a car?
This brings us to the third and final frequently asked question we receive, “Is it a good time to buy a car?” The answer is still, NO! Unless you absolutely need to buy a car, now is not a good time to buy one. Prices are still very inflated and incentives are few and far between. That being said, if you need to buy a car, now is a good time to do it.
The future is uncertain, and right now we do see CarEdge members getting factory order deals well under MSRP, as well as used car deals thousands of dollars below their advertised price.