After inflated high prices for new and used cars reached record levels in 2022, there are signs that they are finally beginning to fall. Some experts believe that the high prices have resulted in a buyer’s strike as consumers start backing away from high prices across the board.
Consumers Tired of High Prices
When supply chain disruptions depleted new car inventory back in 2020 and 2021, used cars became a top commodity. Consumers who needed a new vehicle were out shopping with cash to fill their needs. Soon, the demand for used cars started to cut sharply into supply. The result was massively inflated prices. Many consumers in need of a new vehicle were willing to pay the prices.
As the pandemic wound down, plenty of buyers were armed with extra cash and good credit to buy what they wanted on the used market. However, the new car inventory has made a comeback, and prices for used cars are starting to fall.
The other looming problem is rising interest rates, which are pushing many buyers out of both markets. In response to this cut in demand, prices have started to fall. No one should expect prices to fall to pre-2020 levels, however.
Average Prices Are Still High
Despite the slight downward creep, prices remain high at about 30% to 50% over where they were before the pandemic. The average used car cost nearly $31,000 in September of 2022. The average price for a new car is around $48,000. The higher prices and higher loan rates are also pushing up monthly payments to over $700. These numbers are starting to push millions of buyers out of the new vehicle market and into the market for used cars.
Most automakers are seeing high profits thanks to the high prices as well. For example, General Motors reported a jump in profit of over 36% in the third quarter. This jump is largely due to GM selling expensive pickups and large SUVs. Despite these daunting numbers, many vehicles are becoming more affordable on the used market. As demand started to go down at the end of summer and inventories rose, prices also went down.
Buyer’s Strike In Effect
A buyer’s strike is starting to take effect as well. CarMax reported sales of 15,000 vehicles less in Q3 than the previous year. The CarMax CEO was quick to point out high interest rates, inflation, and decreased consumer confidence. Financial experts are saying the drop in sales foretells a buyer’s strike, which will, in turn, lead to reduced prices.
However, most experts also caution against expecting prices on used cars to go down drastically. Automakers aren’t leasing as many vehicles as before, and rental companies are holding onto their stock as they haven’t been able to get many new vehicles. These are both major sources for used cars that aren’t as available as before.
Next year is likely to be a different story as the economy weakens further and consumers become more conscious of their spending. Prices could fall even more than we’re seeing today.
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