The last six months of 2022 brought softening car prices after 18 months of gains. Used car prices are down 17% at the wholesale level, and retail prices are finally coming down. Will new car prices drop in 2023? Will we continue to see used car prices drop in 2023? Here’s what the data tells us.
Used Car Price Trends in 2023
Expect used car prices to continue a steady decline through at least the first half of 2023. For new cars, it’s a bit more complicated, as we explain below.
From March of 2021 through early 2022, used car prices climbed by over 50%. Just as used car prices began to soften in mid-2022, inflation soared through the roof, acting as a parachute for falling prices.
Still, no matter how you look at the data, used car prices have fallen over the past six months. Data from industry analysts at Black Book shows that retail used car prices have decreased consistently as demand decreased, mostly due to interest rate APRs shooting up dramatically. It now costs thousands of dollars more in interest to finance a car, especially for big borrowers with 72+ month loans.
In 2023, all signs point towards used car prices continuing to fall. If you’re wondering where all of these lower prices are, there’s a good reason for that. The most common metric used to track car prices is transaction price, or how much a buyer actually pays for the car. This is different from the sticker price. Dealers have been slow to drop sticker prices, but they’re much more willing to negotiate with buyers who put in the effort.
Why are cars more negotiable? Used cars aren’t selling as quickly, and rising interest rates mean that floorplanning costs are putting pressure on dealerships to sell soon, rather than hold on to inventory. Every day a car sits costs them money.
How Much Will Used Car Prices Drop?
Don’t expect used car prices to freefall in 2023, barring a severe economic downturn. Prices will in all likelihood continue to trend downward, becoming slightly more negotiable with each passing month.
Demand for affordable vehicles remains high, but unfortunately dealers are stuck trying to cover their losses. What losses, you ask? Thousands of car dealerships quite frankly paid too much for cars at wholesale auctions over the past year. Now that prices are falling, dealers are trying to squeeze every last dollar out of each deal. Therefore, we expect softening used car prices in 2023, but only moderate month-to-month price declines.
On CarEdge Car Search, we’ve been seeing used cars sitting on dealership lots for longer, and as floorplanning costs rise with interest rates, dealers are dropping prices.
New Car Prices in 2023
- Don’t expect MSRPs to go down
- For mainstream models, dealer markups may become a thing of the past
- You CAN negotiate new car prices in 2023
- Inventory is climbing back, but will never return to ‘normal’
There’s less optimism on the new car front, but 2023 will still bring better prices to those who are patient and willing to negotiate.
In 2021, the chip shortage slammed automakers, and new car inventory was down to roughly one quarter of pre-pandemic norms. Now, new car inventory levels are increasing, slowly but steadily. Over the past year, new car inventory levels in the United States have risen from a low of about 900,000 cars per month to 1.6 million cars per month, and we expect to see inventory numbers increase closer to 2 million cars per month in the near future.
These numbers are still below historical norms, but automakers have increasingly made it clear that inventory will never be as high as it was back in 2019.
There’s a lot of pent-up demand for new cars, especially when it comes to hybrids and EVs. For most if not all of 2023, expect popular models to fly off the lot as quickly as automakers can produce them.
For other more mainstream models, it will once again be possible to negotiate new car prices below MSRP. In fact, our members are reporting more success with new car deals already. Check out some of their amazing success stories.
Incentives Remain Very Low
According to Kelley Blue Book, manufacturer incentives remain near all-time lows around 2% of the average transaction price. In late 2021, incentives averaged 4.3% of ATP. Go back to early 2020, and incentives averaged 11% of transaction prices. Wow!
Why are new car incentives going to remain low? Automakers have been forthright about their intentions to keep inventory low, even after supply chain challenges are put behind us. Without a glut of new cars waiting to be sold on dealer lots, there’s no reason to bring back big incentives. This post-pandemic strategy is a win for dealers and automakers, at the expense of vehicle affordability for buyers.
Electric Vehicle Prices in 2023
In November of 2022, the average transaction price for an electric vehicle in the U.S. was $64,249. That’s $16,000 more than the average price paid in the overall auto market. As you can see in the graph above, EV prices have remained parallel to the overall market for years. That could soon be changing, but not for reasons you’re likely to expect.
Automaker executives have recently said that price parity for their electric and combustion lineups is just a few years away. Are EVs going to get cheaper that quickly? A few new, lower-priced EVs are on the way, but that’s not the main factor that will likely turn their price predictions into reality.
What is? Take a look at where MSRPs are headed for all new cars, including those powered by internal combustion engines. CarEdge Auto Expert Justise Lasley says that signs point towards electric vehicle prices remaining high, but traditionally-powered models will continue to receive MSRP hikes, ultimately resulting in ‘price parity’.
Simply put, EV prices may have peaked (and on average may start to fall), but other cars will get more expensive, possibly even catching up to EVs.
However, there are a few affordable EVs we’re excited about. All of these will be available in late 2023.
- 2024 Chevrolet Equinox EV (starting price expected in the upper $30s)
- 2024 Honda Prologue (starting price expected in the low $40s)
- 2023 Fisker Ocean (2023 builds will be $60,000+ trims, but Fisker claims that they will start producing a $40,000 variant in 2024.)
- Don’t forget about the original affordable EVs, despite their charging faults. The Chevy Bolt, Nissan LEAF, Kia Niro EV and Hyundai Kona EV are all worth a look if you can handle hour-long charge times.
If you’re thinking about going electric in 2023, you might find these resources helpful:
- The Best Electric Vehicles Under $50,000
- The Average Price of an Electric Vehicle
- Three-Row Electric SUVs Coming Soon
The Takeaway: Negotiate Car Prices, Don’t Pay Markups
Yes, you can expect car prices to drop in 2023, but in most cases, you’ll have to work for it. Dealers are holding out with higher prices, hoping that buyers who don’t keep up with the market will stumble into their showrooms.
Our mission is to empower car buyers with the skills and know-how to buy, sell and own a car confidently with zero hassle, all while saving money. That’s why we’ve created resources for you, including:
- The only online car search with behind-the-scenes industry insights
- Market price reports for vehicles in your area when you join for free
- Dealer email templates for no-nonsense negotiating
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- Deal School 3.0 – our newest course updated for 2023
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