If you’re thinking of buying a used car, you may be wondering how long prices will stay high. Here’s what you need to know.
- New vehicles were 12.2% more expensive in January 2022 than in January 2021. Used cars saw a worse picture, with prices increasing more than 40% year-over-year.
- COVID-19, the resulting shortage of chips, and the Russian invasion of Ukraine are all part of the problem. These may be over, but car-buying experiences will continue to change.
- You should think about 2024 if you are looking for a car. This is the date that analysts have told Driver that things will slow down. You can also think ahead and plan to research the vehicle you desire and then order it. Don’t lose heart. The car is still as impressive as ever, and that will not change.
Unless you have been scrolling through your newsfeed on your phone for the last few months, you will know the sad truth about car prices. They have soared. The U.S. Bureau of Labor Statistics’ Consumer Price Index summary shows that transaction prices, which is what people paid for their vehicle, increased by 12.2 percent in January compared with a year ago. The costs for used cars were a staggering 40.5 percent higher than last January. Edmunds.com, a new car shopping website, reported that 82% of January’s new-car buyers paid more than the sticker for their vehicle. This is compared to 2.8 percent a year ago. Gulp.
This is the bad news. But the more important question is when will car prices go back to normal and to the hot buyer’s-market deals we had before COVID?
Top auto-industry analysts say that this is unlikely to change anytime soon. For a long time, we will be paying premium prices both for new and used cars.
What is the end date for chip shortages?
Stephanie Brinley is a principal analyst at IHS Markit. “I don’t see MSRPs falling,” she says. “But, I see some volatility in transaction prices leveling off when we get supply closer to the demand. When will automakers be capable of producing enough vehicles to meet that demand? Brinley predicts we will see new cars in late 2023 and early 2024.
As everyone knows, the COVID-19 pandemic caused a shortage in new vehicles. It stopped the production of silicon chips that controlled the many onboard processors. These processors control everything, from the vehicle’s engine controls to its infotainment system, its power-seat memory functions, and even its engine controls. Carmakers are still months away from getting the chips they need to return to total production.
According to Sam Abuelsamid (principal analyst at Guidehouse Insights), “What I hear from my contacts in the semiconductor industry is that things will settle down by the beginning of next year.” Brinley states that “you’re in the second half of next year” before carmakers can produce enough vehicles to allow dealers to build up their inventories.
It’s the Domino Effect
Alex Yurchenko is senior vice president at Black Book and chief data scientist officer. The company focuses its research on used car prices. Yurchenko says that it is difficult to predict where these prices will go, and there are many nuances. Already, we see drops in wholesale prices. We expect retail prices to decline over the next two months and wholesale prices. The small print is that prices will fall but are starting at a level that is not comparable to pre-COVID levels shortly.
Senior economist Carlie Chesbrough at Cox Automotive, which owns Kelley Blue Book and Autotrader, agrees that the chip shortage’s ripple effect will be with us for many years. He says that the 2020 and 2021 repercussions, when 14.5 million and 14.9 million new vehicles were sold, meant that almost four-and-a-half million vehicles were left that people wanted but could not buy. This unmet demand is currently in the used-car marketplace.
Pre-owned cars are three years behind the average vehicle because they get off-lease vehicles when available. We know that the number of used cars on the market in 2023-2024 will be significantly lower. This means that prices will rise at least two years later.
- Read also: What is the price of an electric car?
