Tuesday, August 16, 2022

When Will Car Prices Drop Again

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Used car prices soar: Prices rising again after summer drop

According toU.S. News & World Report, Monday is the best day of the week to buy a car. This is for a couple of reasons:

  • Dealerships arent usually busy on Mondays. Salespeople may have more time on their hands to make deals instead of tending to multiple people at a time.
  • Some weekends are low-performing. On Saturdays and Sundays, dealerships are filled with potential customers. However, if a salesman strikes out and doesnt make their quota, they could be more motivated on Monday to make up for the lack of sales. Alternatively, they could have sold many cars over the weekend and want to keep their numbers high.

The organization cited statistics from True Car, noting that people saved about eight percent on their Monday car purchases.

Used Car Prices Surge Amid Chip Shortage Is It Time To Sell Your Ride

A semiconductor chip shortage has hampered the production of new vehicles and used cars are selling at a premium.

A semiconductor chip shortage has hamstrung the production of a number of products including automobiles. The bottleneck has led some automakers to limit production or store inventory as assembled vehicles await these integral silicon components. With new vehicles in short supply, used vehicles are selling at a premium. But how long could the increased pricing last and when could the chip shortage normalize?

Chip shortage: Used car prices surge

Used vehicles prices have soared in recent months, especially earlier this year. Compared to the previous month, used vehicles prices surged 10% and 7.3% in April and May, respectively, according to data from the Bureau of Labor Statistics, before a 10.5% jump in June. These increases were followed by minimal fluctuations in the summer months and a 2.5% increase in October.

Year over year, component indexes for used cars and trucks increased 26.4%, and new vehicles jumped 9.8%, the largest 12-month increase since the period ending May 1975, the report said.

The used-car market is feeling the effects of the new-car markets semiconductor chip shortage woes, said Jenni Newman, editor-in-chief at Cars.com.

Because there are fewer new cars for sale right now, thats pushing a lot of shoppers into the used-car market, which is leading to greater demand for used cars as well as higher prices, Newman said.

What Can Consumers Expect In The 2022 Used Car Market

Industry experts tell Fortune it will likely take well into 2022 for the used car market to start to return to normal.

As you solve the bottlenecks, and you solve the lack of production, youll eventually start to see normal price patterns. But my view is that does not mean we will approach something like what you saw with lumberwhich had a major price correction, Jonathan Smoke, chief economist at Cox Automotive, tells Fortune. His economic forecast has used car prices continuing to rise through the first half of 2022 followed by a small price pullback in the second half of next year.

Others like Mike Jackson, the CEO of AutoNation, note that consumer demand continues to outpace supply, driven by consumer desire for personal transportation and ongoing manufacturer supply chain disruption, he said on the companys most recent earnings call in October, adding that he expects that to continue well into 2022. That assessment is shared by CarMaxs Lyski, who doesnt foresee prices heading back down to 2019 levels anytime in the next nine, 12 months.

Hearsch of AlixPartners suggests keeping an eye on the number of days inventory sits on new dealer lots. Once that ticks up closer to 50 or 60 days of inventory, thats when you would expect a normalization of pricing, he says.

Prices are going to normalizewhen new car inventory normalizes, which is going to take all of next year, Hearsch predicts.

This story was originally featured on Fortune.com

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Top 10 Used Cars With The Smallest Price Changes

The top ten vehicles with the smallest price differences have increased 1.9 to 3 times less than the average vehicle and are mainly luxury cars.

Top 10 Cars with the Smallest Price Increases iSeeCars November 2021 Study
Rank
$6,939 27.9%

The list is dominated by five luxury SUVs across all sizes, including the first-ranked midsize Volvo XC90, the third-ranked compact Porsche Macan, the fourth-ranked full-size INFINITI QX80, the seventh-ranked midsize Porsche Cayenne, and the eighth-ranked compact Mercedes-Benz GLC.

The Mercedes-Benz GLC, the Porsche Macan, and the Porsche Cayenne are among the highest-rated and top-performing vehicles in their classes, but they are also among the most expensive, which could explain why their price increases are lower than competitive models, said Brauer. The Volvo XC90 and the INFINITI QX80 are also quality vehicles with advanced technology, but their aging designs prevent them from standing out in their respective segments.

Three pickup trucks make the list including the second-ranked Nissan Titan XD, the sixth-ranked Chevrolet Colorado, and the ninth-ranked Nissan Titan. The Nissan Titan and its XD heavy-duty-ish model are the slowest-selling trucks in the full-size segment, reflecting low demand in the used car marketplace, said Brauer. The compact Chevrolet Colorado is a value-oriented pickup with one of the lowest prices in its class, and it has seen increased competition with new entrants to the segment.

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Autonomous Vehicles Could Stall

Automakers once promised to have a fully self-driving vehicle ready by 2020. However, 2022 could see some breakthroughs. GM and Mercedes-Benz are set to roll out the first true hands-free Level 3 in industry-speak driving technology for consumers. Others, like Waymo and Cruise, are focusing on ride-sharing services and cargo haulers. But safety probes involving Teslas Autopilot serve as a cautionary note about just how difficult a challenge it is to develop a fully autonomous vehicle.

What Could Happen Next

History tells us the current frenzy in the used-car market will come to an end, KPMG says. As the microchip shortage and other supply chain problems ease, the massive auto manufacturing machine will shift back into high gear, and dealer lots will again be full. When that happens, the used-car market could collapse.

If the normal relationship between new and used car prices is restored, KPMG says, That would imply a drop in used-car prices of about 30% below where they are today. The drop could be less dramatic if inflation persists.

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Auto Production Disrupted By Chip Shortages: A Dream Car May Be Hard To Find

Automakers are struggling with persistent shortages of essential parts especially semiconductors, which are embedded throughout vehicles these days and whose production hasn’t kept up with the roaring demand for vehicles.

The result is a severe car shortage: Auto-sales site CarGurus reports inventory levels are down 64% over last year. And that has driven average prices up by thousands of dollars in just a few months.

But it is still possible to buy a vehicle as long as you’re willing to make some compromises.

President Biden holds a chip during remarks before signing an executive order on the economy on Feb. 24. The Biden administration is taking steps to try to improve the supply of semiconductors in the United States.hide caption

toggle caption

President Biden holds a chip during remarks before signing an executive order on the economy on Feb. 24. The Biden administration is taking steps to try to improve the supply of semiconductors in the United States.

Getting A Good Deal As A Bad Credit Borrower

Exploding used car prices will finally drop, says Fed

If you’re a bad credit borrower, you can wait it out and improve your credit over that time, but if you can’t wait, working with the right lender is key. As a bad credit borrower, your options are a bit more limited, but far from gone.

You can look for a pre-approval from a direct lender, such as your bank or credit union. You can also try your hand at working through the captive lender of an automaker — some, like Kia, Ford, and Hyundai are known for working for many types of borrowers.

You may have your most luck by working with a special finance dealership or BHPH lot though, especially with credit issues.

It pays to know the ropes before you head out to the dealerships when you’re looking for the cheapest deal on a car loan. Knowing which dealers work with bad credit lenders is also key. You have options when it comes to getting a car loan, but not all lenders work with all credit situations.

Those that do are called subprime lenders and they look at more than just your credit score to qualify you for an auto loan.

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What Will It Take For Prices To Normalize

The simple answer is for supply chain issues to get worked out and production to return to normal levels so that supply and demand can balance out.

But easing those upstream shortages and supply chain issues wont be easy. The well-documented supply chain kinks that are causing the so-called everything shortage dont have one culprit, save for the pandemic broadly. Its a shortage of individual components, which is caused by a shortage of semiconductors, shortages of labor, allocation of steel and resinTheres lots of disruption, Hearsch tells Fortune. Not to mention, transportation and shipping issues and delays at ports, he suggests, are the biggest weak spot at this point.

On that front, some actions have been taken of late, including President Joe Bidens deal to open the Port of Los Angeles 24/7 in an effort to alleviate backlogs. But that can only do so much. For auto production to ramp up domestically, chip and semiconductor production in Asia needs time to catch up with demand. The bad news? That chip shortage, in particular, could stretch into 2023.

Chip Shortage Likely To Keep Car Prices Sky

Back in the spring, a shortage of computer chips that had sent auto prices soaring appeared to be finally easing. Some relief for consumers seemed to be in sight. But that hope is now fading, as a surge in COVID-19 cases from the Delta variant in several Asian countries is worsening the supply shortage, further delaying a return to normal auto production and keeping the supply of vehicles artificially low.

That means record-high consumer prices for vehicles new and used, as well as rental cars will likely extend into next year and might not return to earth until 2023, according to analysts.

In July, new-car prices hit a new record for the fourth straight month, according to Kelley Blue Book. The average transaction, at $42,736, was 8% higher than one year ago, with a typical new car costing above the manufacturer’s suggested retail price.

Sales of new cars, meanwhile, have been tumbling a mirror image of prices. In August, new vehicle sales in the U.S. fell nearly 18%, mainly because of supply shortages. Not counting the drop in 2020, August’s “pace of sales is the lowest since late 2011 during the recovery from the Global Financial Crisis,” Oxford Economics’ Mahir Rasheed wrote in a research note.

“A storm of headwinds including the global semiconductor shortage, expiring fiscal support, and a spending rotation towards services will preclude sales from returning to their early 2021 pace,” he wrote.

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How We Got Here

A perfect storm of factors combined to quickly heat the used car market in 2021.

The worst of the economic slowdown caused by the COVID-19 pandemic began to ease. Americans got vaccinated. Government assistance helped many catch up on bills and start to shop again.

Nervous about public transit during a global pandemic, Americans sought out cars.

But automakers had few new cars to sell them. A worldwide microchip shortage left the automotive industry building fewer cars than planned. In Q3 2021, new-car production fell to about a 12-million-unit annual rate, KPMG notes, when 17 million might have been expected if not for the collision of several crises.

That pushed new car prices up the average new car sold for more than $46,000 in November, a 13% increase in just one year. Higher new car prices sent many shoppers into the used car market.

But the used car market was rocked by its own wave one tracing back many years. Automakers had trimmed production for several years after the 2008 recession. That left fewer of the older, higher-mileage used cars dealers sell for under $10,000. With more buyers but only a small supply of expensive, recent cars, the used car market saw inflation that made new car prices look tame.

In November, the average used car sold for more than $27,000 a 27% increase in just one year and 41% higher than the pre-pandemic average of two years ago.

Used Car Prices To Drop In Late 2022 Kpmg Predicts

Used car sales in the UK fall again for Q3

The rising prices of used vehicles may be a good thing for those looking to sell, but its quite another story for buyers. When will the market get back to normal? Is that even possible? You might want to know what analysts are seeing in their crystal balls.

Based on its latest data and analyses, consulting firm KPMG told Automotive News that the average used car price will fall about 20-30 percent in late 2022 and early 2023. By then we should see a return to a normal gap with the average new car price.

Obviously, it all depends on vehicle supplyand the ongoing chip shortage, among other factors. But even if new car supply catches up to demand only toward the end of next year, KPMG believes that used car prices will begin to fall before then. Why? Because dealers will anticipate the turnaround in the new car supply situation ahead of time and start repricing used cars before new car lots are full.

A bit more optimistic, Cox Automotive expects used car prices to peak for a final time between January and April 2022, after which they will slowly go down. How governments and reserve banks step in to curb inflation will be key.

As we reported earlier this month, used vehicles gained nearly 45 percent value from November 2020 to November of this year according to Manheim and Black Book. Customers who couldnt wait until prices return to normal levels will have significantly overpaid.

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Which Models Have Been Going Well

Unsurprisingly it was popular mainstream models that have increased in price. The average price of a Ford Focus went up by 4.4% month on month, to £17,249. Thats an increase of more than a fifth compared with the same car in the same period in 2020.

The Audi A3 also saw a big jump, up by 18.2% year on year.

Normalization Of Online Car Buying

When the U.S. went into lockdown, the industry hit upon a novel idea. Because customers couldnt go to dealers, dealers went to them over the internet. Even after the country opened back up, more and more customers are shopping for their cars online, and many retailers schedule test drives and deliver new vehicles to buyers homes or offices. Meanwhile, with showroom lots nearly bare, normally impulse-driven motorists have begun ordering their cars and waiting sometimes for months to take delivery.

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Will Prices Come Back Down Again

Analysts at CAP HPI predict prices will continue to rise, peaking at about 30% up, year-on-year, in December. However, as more new cars come on stream going into 2022, CAP HPI is expecting a change. It believes by summer next year, used car prices will have fallen by around 16%. So the message is: if youre looking for a used car bargain, be patient.

On the other hand, if youre looking to sell, without buying a younger replacement, now is a brilliant time to do so.

Pointing You Toward Your Next Deal

WHY is NOW the WORST TIME to BUY A CAR (AUGUST 2021 DATA) | When will USED CAR PRICES DROP

Knowing which dealerships work with bad credit borrowers can be invaluable, but it can still be stressful to go from dealership to dealership looking for the right loan. Let us spare you the headache of the search by matching you to a special finance dealership in your area. At Auto Credit Express, we work with an extensive network of dealerships that help people in tough credit situations. Let us get you connected by filling out our fast, free auto loan request form.

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