New car dealers continue to sing the blues. The pandemic limited sales because of supply chain bottlenecks resulting in rising prices. But there may be a silver lining for consumers willing to consider a used model.
Now that the supply chains are improving, prices remain high and consumers have taken notice. The Wall Street Journal reports the lack of affordable options has dampened new car sales over the last few months.
Interest rates are a large contributing factor. Thanks to the Federal Reserve’s aggressive interest rate tightening policy the interest rate on new car loans is several points higher than a year ago.
At the same time, used car prices are falling – meaning a buyer’s trade-in is worth less. The Journal reports new car supplies remain limited and the vehicles that are most available are among the most expensive. Heading into 2023, inventories of new cars are about half pre-pandemic levels.
Dealers expect the pressure on new-car buyers will hurt vehicle sales until availability improves, which analysts say should lead car makers to offer more discounts. While vehicle inventories are rebuilding, they remain at about half of pre-pandemic levels, and automakers expect relatively tight supplies to last at least through this year.
To counter these trends some dealers are getting creative. According to Pymnts.com, online sellers are trying to speed up the sales process, something that tends to make both dealers and buyers happy. More dealers are moving to an extended test-drive period, allowing buyers to try out the vehicle for as long as two weeks.
Used car prices headed lower
That said, consumers who need a new set of wheels might do better to go to the used car lot. After hitting all-time highs early last year, prices of used cars have significantly fallen.
“These last three years have been extremely volatile for the market, and these declines follow record increases, Cox Automotive Chief Economist Jonathan Smoke said recently. “In December 2021, we were up 47% year over year. The pre-pandemic levels will likely never return, but all indicators point to reaching equilibrium in the second half of 2023.”