Will car prices drop in 2023? What to expect as car demand stabilizes – USA TODAY

Car shoppers have faced sky-high prices for more than a year in part due to high demand and tight inventory. But 2023 may finally bring some relief. 

As demand stabilizes and inventory improves, prices are expected to ease slightly. Prices could drop up to 5% for new vehicles and between 10% to 20% for used ones, according to a November report from the bank J.P. Morgan. 

Used-car prices have fallen after surging in 2021, with a recent drop of more than 3%, according to U.S. Bureau of Labor Statistics data. The average used car sold for $27,156 last month, a 1.5% decrease from October, according to Kelley Blue Book.

New-car prices, meanwhile, are still historically high. Their average transaction price hit a record $47,681 in November, according to car pricing site Edmunds. But it was also the first time since July 2021 that the average paid price fell below the average manufacturer’s suggested retail price, or MSRP. When that happens, it signals that some buyers are able to negotiate a lower price for vehicles.  

There is some bad news for buyers, though. Rising interest rates will likely offset the decline in vehicle prices, meaning Americans who finance their cars may not see much, if any, relief.

In November, the average interest paid over the life of a new car loan reached a record $8,436 and the average interest paid over the life of a used car loan reached an all-time high of $10,204, according to Edmunds. 

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Why are car prices so high?

New-car prices have risen because of increased costs of raw materials and shortages of chips for computers that control a vehicle’s gas pedal, transmission and touch screen. The rise in new-car prices has fueled the demand for less expensive used vehicles, according to J.P. Morgan. 

“We estimate that half of the increase in new vehicle prices relates to the passing along of higher input costs, including raw material costs,” Ryan Brinkman, lead automotive equity research analyst at J.P. Morgan, said in the report.

The prices for traditionally cheaper options like compact and midsize cars have increased this year due to consumer demand for affordable vehicles, according to Edmunds data. 

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What is the cheapest month to buy a car?

The final months of the year— October, November and December— typically see the deepest car discounts, and deals on new cars usually coincide with the introduction of new models, according to Edmunds, making current cars and trucks less desirable. 

December typically has the best deals, with the biggest discounts available on New Year’s Eve, according to CARFAX. But there are other good times to buy a vehicle if a consumer needs to buy sooner.

The end of the month, end of the model year and holiday weekends are also usually a prime time to score a deal on a new car. 

How can I get the best car deal?

The chip shortage and record-high prices have changed the typical guidance for car shopping in 2022, but buyers still have time to snag a good deal. 

Experts said shoppers should cast a wide net and be flexible when searching for a vehicle. Buyers should also negotiate at the dealership, using the sticker price as a starting point. (Here are more tips on scoring a year-end car deal this December.)