A new car is a major purchase, and in the wake of disruptions caused by the COVID-19 pandemic, it’s only become more expensive. For the past two years, car prices have risen, due to factors like a lack of raw materials and increased production costs. Even used cars have been impacted. But the good news is prices began to fall in the last half of 2022, a trend expected to continue through 2023. Researchers for J.P. Morgan predict the price of used cars could drop by 20%.
The pandemic had a snowball effect on the market worldwide. Factory closures caused a shortage of microchips used for electronics in things like windows and sunroofs, which affected over 4 million new cars. As a result, dealerships had limited inventory, which increased demand for used cars and drove up costs so much, some used cars were more expensive than new cars.
Lack of New Cars
Because of the lack of new cars, dealerships were willing to pay more for used cars, which translated to higher prices for buyers. Prices for used cars saw a historic rise and reached an all-time high after increasing almost every month in 2021. Used cars now cost the same as new cars did in 2010, with prices remaining about 30% higher compared to before the pandemic.
But as supply-chain issues begin to resolve, the market for new cars and used cars is stabilizing, leading to lower wholesale prices and decreased demand, and therefore, increased inventory. This is expected to continue throughout the year.
Numerous factors impact the cost of new and used cars, such as the age of the vehicle. Used cars at least five years old have seen the greatest decrease in price, compared to late-model used cars.
The price decrease also depends on the type of car and its specs. Coupes are priced below average compared to others. The price of sedans and SUVs has fallen the most, while minivans have seen the smallest decrease.
Make and model is also a factor, with some manufacturers like Ford and Nissan seeing a greater drop in price. Prices are also going down for cars like Audi, BMW, and Mercedes-Benz.
Although material shortages affected the production of new electric cars, they are decreasing in price, including used models, in part because Tesla cut prices. The move not only impacted the price of used Teslas, especially older Tesla models, but it impacted all-electric vehicles—in response, other manufacturers, like Ford, also lowered prices.
Still, it’s important to remember the market for used cars is unstable and there are no guarantees. Car prices may fluctuate from month to month throughout 2023 and are unlikely to drop to pre-pandemic levels soon, if at all. The used car market isn’t expected to fully recover until 2025. So if you need a new vehicle and are looking for used cars for sale, you’ll spend less compared to last year. But if you can wait, you may save more money as dealership prices fall.