Are Car Sales Down In 2022
Both the economy and the auto market have had a difficult first quarter. The trifecta of challenges affecting the new-vehicle market has not been favorable. According to the vehicle purchasing software CoPilot, sales of used cars less than 10 years old were down 27% last month compared to March 2021.
Record high cases of COVID-19, a war between Russia and Ukraine, and a fragile supply chain are driving up costs. In addition, with inflation on the rise and working to erode the living wage, many consumers are not in a position to purchase a vehicle right now.
Demand Will Remain High
The year has started on a positive note with buyer activity noticeably busy across eBay Motors Groups platforms, with many of our dealer partners benefitting from robust enquiry levels since the traditional Boxing Day bounce in online searches.
Following the prime minister announcing his decision not to step up the current Covid restrictions, in-market buyers can now focus their attention on researching and purchasing their next car. And with ongoing supply problems in the new car market, this means demand for used cars will remain high.
Trade values are still tracking at record levels and many of the large dealer groups going into January stocked up, we can expect used car pricing to remain stable at the current levels for some time to come.
Phill Jones, head of eBay Motors Group
Used Cars Will Get Older
Many car makers are saying that it will be Q3 2022 before they are likely to see production back to 100 per cent of what it was previously and even then, they will have to fulfil the existing order book.
In the UK alone finance houses and leasing companies have tens of thousands of new cars in their order banks and it may take a few more months before those new cars arrive and the used cars move back into the used markets.
With an uplifted number of used cars coming off finance another year older due to contract extensions, or simply three months older due to the payment holidays consumers were offered in 2021, we see the average age of many used cars in the market continuing to rise in the coming year.
However, demand and prices are likely to remain high during 2022 and will only start to soften if volumes get to the stage of supply exceeding demand.
We believe that this may well be felt into 2023 and in the meantime, vendors will continue to innovate to best represent their white label partners and manage their own risks in a market which continues to prosper.
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Why Are Used Cars So Popular
When you buy a new car, the value of the vehicle drops by almost 20% as soon as you drive it off the dealership. After the sharp drop in value, the vehicle depreciates much more slowly over the course of its life.
Some customers prefer not to invest in an asset that depreciates so suddenly. They would much rather someone else take the first depreciation hit and then buy a used car as a much more stable investment. Besides, used cars have lower insurance costs, need lower financing requirements, and are generally more reliable .
Forecasts For Car Prices
Paris believes there could be a small pullback in car prices this summer. However, the industry will likely see an increase through the close of the year. Paris adds that production should stabilize in the back half of 2022 as supply constraints ease.
Investors and consumers are hopeful that this will lead to increased and normalized production without supply-chain related delays. If thats the case, we could start to see car prices decline in the not-too-distant future. According to J.D. Power, used-vehicle values will begin their descent to more normal levels by late 2022 and into 2023.
Meanwhile, consulting firm KPMG expects a notable dip in used-car prices. They expect used-car prices to drop 20%-30% sometime in the months after October 2022.
Finally, Kelley Blue Book says that the second half of the year is starting to look better for car buyers, with inventory slowly beginning to recover, particularly in the used market.
On the date of publication, Bret Kenwell did not hold any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
Article printed from InvestorPlace Media, https://investorplace.com/2022/07/when-will-car-prices-drop-in-2022-2023/.
©2022 InvestorPlace Media, LLC
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When Will Car Prices Come Back To Earth
We talked with top industry analysts to find out when todays soaring car prices might return to pre-pandemic levelsand their predictions arent pretty. That doesn’t mean you can’t still find a car you love, if you’re flexible.
- Buyers paid 12.2 percent more for new vehicles in January 2022 than in January 2021, and the picture was even worse for used vehicles, which were up more than 40 percent year over year.
- COVID-19, the resulting chip shortage, and now the Russian invasion of Ukraine are all parts of the problem. Those may end, but expect the car-buying experience to be permanently changed.
- If you want a car, think ahead to 2024, a date when analysts told Car and Driver things will be leveling off somewhat. Think ahead, too, and plan to do research and then order the vehicle you want. Just don’t give up. Cars are still just as awesome as ever, and that won’t change.
That’s the bad old news. The more pressing question is: when will car prices return to earth, to the hot buyer’s-market deals we saw before COVID hit?
According to top auto-industry analysts: not any time soon. We’re going to be paying premium prices for both new and used vehicles for a long time to come.
Why Are Used Car Prices So High
The increase in used car prices is a side-effect of the increase in new car prices caused by a shortage of semiconductor chips.
Semiconductor chips are an essential component of car systems like airbags, ABS, seatbelt safety tensioners, radios, touchscreens, and more. When the pandemic first started in 2020, the global supply of microchips fell sharply due to constant lockdowns and poor demand for new cars.
However, once things started opening up in 2021 and Americans started purchasing more, microchip manufacturers have been unable to keep pace with the increased demand for chips to be used in new cars. This, in turn, led to stalling of new vehicle production.
With new cars becoming more costly, the demand for affordable used cars also increased drastically, which led to the current high prices.
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What Can We Expect For Used Car Prices In 2022
Under normal circumstances, cars depreciate in value, but in 2021, the value of used cars increased dramatically. Retail prices climbed up by 36% and wholesale used car pricesjumped by 52%.
In 2022, the trend has taken more of a roller-coaster effect so far. After a long stretch of record-breaking highs, we finally saw these prices drop nearly 5%during the first quarter of this year. Then in April, we saw prices begin to level off. And now, used cars are starting to appreciate once again. That said, prices do appear to be dropping ever so slightly. Reports for Q1 of 2022 are showing that the overall prices of used vehicles sold at wholesale auctions actually declined by 1%. This marked the third month of declines in a row since the beginning of this year.
âWeâve most likely passed the peak of prices,â says Alex Yurchenko, chief data science officer at Black Book. Yurchenko also notes pricing âis a complicated question and there are a lot of nuances to it. We’re already seeing declines in wholesale prices. After the next two months, we expect to see both retail and wholesale pricescoming down. But we’re starting so high that we’re not going to get to the pre-COVID level any time in the foreseeable future.”
What Caused Used Car Prices To Skyrocket In The First Place
There are two major reasons for the continued, rapid rise in used automobile costs.
The first is the ongoing global microchip shortage. This shortage is a major contributor to the lack of new car production that started in March of 2020. Modern motor vehicles use more chips than those that came before. When mass quarantines began, auto manufacturers expected there to be a significant decline in the demand for new cars. This led to lower sales forecasts and canceled parts purchased for components like microchips. Although the demand for new cars did drop, the decline was short-lived. By the time automakers realized the error it was too late, chip manufacturers took on other work to compensate for the lost orders.
The second reason is the recent conflict between Russia and Ukraine has intensified these shortages. The threat of limited raw materials is already affecting chip production projections. This could potentially lead to an even greater chip scarcity down the line.
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States Where Used Car Prices Have Jumped The Least Over The Past Year:
- Oklahoma with a year-over-year change of 0.8% or $278
- Alaska with a year-over-year change of 1.3% or $542
- Rhode Island with a year-over-year change of 3.4% or $1,038
- Hawaii with a year-over-year change of 5% or $1,562
- Mississippi with a year-over-year change of 5.1% or $1,663
To look at the full details of just how expensive a used car is in each state, including which vehicle is the most expensive in your state, check out iSeeCars.com.
Tips For Buying A Vehicle Right Now
If you must shop right now, we recommend a few strategies that might help you find the right new or used car that fits your budget.
It may still make sense to keep your existing car for another year if you can. If you must buy, be prepared to take excellent care of your next car to keep it running for a long time.
Related Articles About Car Buying and Selling:
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Buyers Have Leverage For Some Used Vehicles
Shefska also says used car prices have been dropping since the start of the summer and may continue to fall. That’s because wholesale prices have decreased, paving the way for dealerships to also be able to lower their prices. That said, there was a small spike mid-summer, which brought the average used car price to just over $28,000 in July 2022.
Kelley Blue Book states that real savings can be had when it comes to purchasing larger vehicles such as SUVs and pickup trucks since consumers have veered away from less full-efficient vehicles amid recent spikes in gas prices. Savings on smaller compact cars, meanwhile, can be more difficult to find.
According to Shefska, if you’re in the market for a pre-owned vehicle, consumers are in the driver’s seat. He strongly recommends that shoppers track down vehicles that have been sitting out on the car lot for more than 60 days the longer the car sits there, the more incentivized the dealership becomes to sell it.
Retail Price Trends Lag Behind Changes At Wholesale Auctions
Historically, retail used car prices lag 4 to 6 weeks behind wholesale prices. We started to see significant wholesale price declines in the last week of June, and more so by mid-July. Take a look at the last 8 weeks of wholesale car prices:
+0.10% the week of June 20
-0.02% the week of June 27
-0.15% the week of July 4
-0.35% the week of July 11
-0.45% the week of July 18
-0.47% the week of July 25
-0.86% the week of August 1
-0.89% the week of August 8
Since early July, wholesale used car prices have dropped -3.19%, and some vehicle segments are down more than 5%. You may be asking why retail prices havent started dropping if wholesale prices started their downward trend seven weeks ago. Until the week of July 18, the wholesale declines were slight. Basically, they were within the margin of error, and the change wasnt yet large enough to draw any big conclusions. When we started to see declines of -0.45% to -0.89% in a single week, that was the surefire indication that the price drop is real, and the bubble may even be bursting.
While advertised retail prices may not be lower , we have heard more and more stories from our community of successful negotiations taking thousands of dollars off of used car deals. Negotiating on a used car is possible, and you should be encouraged to do it.
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Battery Costs And Warranties
But what if the battery does degrade to the point where it has to be replaced?
Estimates for the cost of new batteries are all over the map, from $0 to $20,000.
Nearly all new EV batteries are warrantied for at least eight years or 100,000 miles. In California, EV and hybrid batteries will be covered for 10 years or 150,000 miles by the year 2030, as part of the Advanced Clean Cars II regulations.
You may be able to buy one used off a wrecked EV, or find one that has been reconditioned, at a discounted price.
Why Are Prices So High
A lot of it comes down to the global microchip shortage and other supply-chain disruptions that have plagued many industries since the dawn of the pandemic. Chips control everything on a car from infotainment screens to window motors. Its the main culprit behind the current tightness in the new- and used-car markets, multiple experts tell CR, and it has also affected the availability of other consumer products.
And it doesnt appear to be getting better anytime soon. This spring, Pat Gelsinger, CEO of Intel, one of the larger chip manufacturers, downgraded his prediction for when semiconductor stocks would bounce back to normal. Now, he says, it might stretch into 2024.
There are also reports of supply disruptions for a number of other components, including airbags and even the insulation mats that go under the hoods of vehicles, says Sam Abuelsamid, an analyst with Guidehouse Insights, an auto industry analysis firm. These sorts of disruptions are caused by a variety of challenges, including shipping delays and ongoing disruptions in Asia, as well as labor shortages that are also expected to last into 2023.
According to the Consumer Price Index report from July, used-car prices are 6.6 percent higher than last year, although still more than 50 percent higher than they were in February 2020, before pandemic-related disruptions catapulted the economy into turmoil. Quite simply, new-car shortages continue to put pressure on the used market.
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Yaas Auto Experts Are Already Seeing More Deals
Our very own market researcher notes that some vehicle segments are softening, but mass-market sedans and trucks are holding firm. Im starting to see increased negotiability with late model mid-size SUVs like the Mazda CX-9 and the luxury segment . These segments have been softening and represent some good deals. Trucks continue holding value. I havent seen much change on the lower end and small sedans.
YAA Auto Expert Justise also emphasized more consumer negotiating power as the first sign of a softening auto market. Luxury and non-hybrid vehicles are already a lot more negotiable than they were last month. I am also seeing a lot more deals across the board without as many shenanigans like nitrogen tires, and fewer markups over MSRP. Even many Toyota & Hondas that are 2020-2021 model years are coming back down to Earth.
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Are Retail Car Prices Guaranteed To Drop
Think about what weve all collectively been through over the last few years. We know better than to assume anything in this market is guaranteed! Todays car market is unlike anything weve ever seen before. New car inventory remains very low, and prices are sky-high while interest rates complicate matters even more. And we havent even discussed inflation. So no, nothing is guaranteed, but its undeniable that overall market pressure is building that will most likely push dealer sales managers to adjust pricing downwards.
Another factor to take into account is that dealer sales managers are going to try their hardest to cover their losses. Those who bought severely overvalued used vehicles at auction two to six months ago are going to either stand defiantly and demand high prices, or theyll be smart about it and cut their losses by negotiating with prepared, knowledgeable car buyers.
YAAs own Ray Shefska said it best. The smart dealers will take their losses, and sell what they can now. Wholesale price trends are indicating that they bought overpriced used vehicles for the past several months, and theyre losing money every day they dont sell their inventory. This could drive prices downward sooner rather than later. Smart sales managers look at pricing weekly. If cars arent selling quickly like they have been, thats a sign that the market is changing.
