Is it possible that the market is finally normalizing for used cars? It appears that way, according to industry analysts. The pandemic caused a seller’s market that made vehicle prices soar, but that appears to have mostly collapsed now. In fact, dealers now have such high inventories that they’re competing with discounts to draw buyers.
Shift To a Buyer’s Market
The market for both new and used cars has shifted toward the buyer. Dealers are having to entice buyers with discounts. That’s where the bad news comes in as interest rates remain at record levels. New cars might be more affordable, but new car loans aren’t easy to get at reasonable prices.
If you’re looking at used cars, the market is still complicated. The supply is still tighter than in the years before the pandemic, but it seems to be improving. If you’re thinking about buying or selling a car right now, there are a few things to know. It’s common for car shoppers to be in both markets, so the tips apply widely.
What To Expect In the New Car Market
If you haven’t looked at new car prices since 2021 or 2022, you might still have sticker shock from those markets. However, the situation has improved since then. The average price of a new car fell by 2.4% in 2023, which is a significant drop for a one-year period. Incentives and discounts are also going strong right now as many dealers are oversupplied.
Auto dealers now have between 70 and 100 days of supply on hand when the usual rule of thumb is to have 60 days. Some brands are doing better than others in this area. For example, Toyota and Lexus vehicles are still selling over MSRP and aren’t stocking nearly as many cars as rivals.
However, affordability in the new car market isn’t just about sticker price. Most buyers need a loan to buy a new car. The current interest rates have priced many buyers out of the market. The rates set by the Federal Reserve have stayed steady since last summer and November saw lowered rates.
What To Expect in the Used Car Market
Used cars are experiencing fluctuating prices but at a much lower rate than before. The average list price is down by 3% from the previous year. Car dealerships still have low inventories of used cars, but that’s slowly improving. At the end of last year, the average dealer had a 56-day supply of used cars, which is just below the usual 60 days.
The hardest type of used car to find is an affordable one. Most dealers can’t keep much stocked with prices below $15,000. Part of the problem is automakers building more expensive cars. Cars priced at $25,000 or less have fallen out of the market by 78% in the last five years. Conversely, cars priced at $60,000 or higher have grown by 163% in the same time.
If you’re selling a car, the news is good. Used cars are still commanding high prices. However, they have fallen enough recently to lower trade-in values. If you’re buying a new car, it’s still a little tricky with high prices and loans being harder to get.
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