When will car prices return to Earth?

When will car prices return to Earth?

  • Buyers paid 12.2% more for new vehicles in January 2022 than in January 2021, and the situation was even worse for used vehicles, which were up more than 40% year over year. ‘other.
  • COVID-19, the resulting chip shortage, and now the Russian invasion of Ukraine are all part of the problem. These may come to an end, but expect the car-buying experience to be changed forever.
  • If you want a car, think 2024, when analysts said Car and driver things will stabilize somewhat. Also, think ahead and plan to do some research and then order the vehicle you want. Do not abandon. The cars are still as impressive as ever, and that won’t change.

    Unless you’ve been avoiding the News Feed on your phone for the past two months, you know the sad story of car prices: They’ve skyrocketed. According to the United States Bureau of Labor Statistics Consumer Price Index Summary, transaction prices — what people actually paid for their vehicles — rose 12.2% for new vehicles in January from a year ago. Used car prices were 40.5% higher than in January of last year. New car shopping site reported that 82% of new car buyers in January paid for a sticker for their new vehicle; a year ago, only 2.8 percent did. Sip.

    That’s the bad old news. The more pressing question is, when will car prices return to the land, buyer’s market deals we saw before COVID hit?

    According to top auto industry analysts: Not any time soon. We will be paying high prices for new and used vehicles for a long time to come.

    When will the chip shortage stabilize?

    “I don’t see MSRPs going down,” says Stephanie Brinley, principal analyst at IHS Markit. “But I see some of the volatility with trade prices stabilizing as we bring supply closer to demand.” When will automakers be able to produce enough new vehicles to start meeting this demand? “We’re talking late 2023, early 2024,” predicts Brinley.

    The shortage of new vehicles, as everyone now knows, was caused by the COVID-19 pandemic, which halted production of the silicon chips that run the multitude of in-vehicle processors that control everything from engine controls to a vehicle to its infotainment system and its power. – seat memory functions. Unfortunately, automakers are still months away from being able to get as many chips as they need to get back to full production.

    “What I’m hearing from my contacts in the semiconductor industry,” says Sam Abuelsamid, Principal Analyst at Guidehouse Insights, “is that hopefully by early next year, things will calm down.” And that, says Brinley, means “you’re in the second half of next year” before automakers can produce enough new vehicles for dealers to even start building inventory.

    It’s a domino effect

    “We’ve most likely passed the price peak,” says Alex Yurchenko, senior vice president and chief data science officer at Industry Analyst. black book, which focuses its research on used car prices. Where those prices are going, says Yurchenko, “is a complicated question and there are a lot of nuances. We are already seeing declines in wholesale prices. After the next two months, we expect to see retail prices fall, as well as But the fine print is that, yes, prices will come down, but we’re starting so high that we’re not going to reach pre-COVID levels anytime for the foreseeable future.

    Analyst Carlie Chesbrough, senior economist at Cox Automotivethe company that owns both Kelley Blue Book and Autotrader, agrees that the domino effect of chip shortages will be with us for years to come. “The impact of 2020 and 2021,” he says, “when we sold 14.5 million and 14.9 million new vehicles when we normally had a market of 17 million, means you have almost four million and half of vehicles that were wanted than anyone This unmet demand now concerns the used car market.

    “With used cars, they are on average three years behind because that’s when you get the non-leased vehicles. So we already know the volume of [used] vehicles available on the market in 2023 and 2024 are going to be considerably lower.” And that means higher prices in at least two years.

    Big changes for dealers

    “The industry is going through a transformation,” says Chesbrough. “COVID has provided this opportunity to get lean and mean, taking away the incentives, exposing the dealer lots.” To give an example, Automotive News today reported on Ford’s plans to create a new concession model for its electric vehicles, this would involve “a commitment to have no inventory, to sell at non-negotiable prices and to operate with reduced facilities”.

    According to Brinley, “Automakers and dealerships have realized through [today’s challenges] that a lower inventory situation makes them more profitable. We’ll probably see dealerships with less inventory.”

    Big changes to the dealership model will likely mean the rebates and incentives won’t return, Abuelsamid says. “Manufacturers are going to try to maintain that discipline of balancing inventory with selling demand to keep prices down. So I don’t think we’re going to go back to where we were in 2019.” He means never. Yerchenko says: “For probably the next three, four or maybe five years, we’re going to be in an environment where second-hand inventory is limited. And that’s going to keep prices high.

    “What we can’t predict are external events,” Brinley points out, “and over the past three years, the hits just kept coming.” Indeed, the war in Ukraine is already affecting European automobile production. According to reports in both New York Times and industry publication automotive news, Volkswagen, BMW and Porsche, which depend on a supply of wiring harnesses assembled in Ukraine, are already being forced to cut production. This will likely impact the number of vehicles these companies can export to the United States, further limiting the supply of new cars. Given the rules of supply and demand, fewer cars for sale will likely mean prices will stay high for longer.

    Based on these assessments, it looks like new cars will be in short supply until 2024, and the number of used cars on the market could lag demand by at least two years beyond that. In other words, it will be a long time before new and used car prices come back down to near pre-COVID levels.

    Plan to order and wait, but you can still get a car

    So what should a car buyer do?

    Don’t wait, says Abuelsamid; it is useless. “What I’ve told my friends and neighbors who want to buy a vehicle is to plan ahead, give yourself a few months, figure out what you want, go to a dealership and order it from there. factory. So when it arrives, it’s assigned to you.” And if you’re trading in, remember that your used vehicle is probably worth several thousand dollars more than it was a short time ago, which will help offset rising vehicle prices.

    “Now we have to look at buying cars a little differently,” advises Brinley. “Understand that while new vehicles are rare, they do exist. If you’re a little patient, you don’t have to accept the price you’re being offered. There’s another dealership down the street. There’s there’s another vehicle coming down the road. This could mean you don’t get your new vehicle within two days of spending 10 months researching and being ready to buy. You may have to wait Be proactive as a consumer; you don’t necessarily have to accept the offer that’s in front of you.”

    For those of us who love new and old cars, this isn’t the news we wanted to hear. But it’s time to face the new reality: Vehicles of all types and ages are now significantly more expensive than they were before the pandemic, they’re going to stay that way, and you’re going to have to budget accordingly. This only reinforces our deep belief that the best thing you can do when buying a vehicle is to buy something you love. You’re going to be spending a lot of time behind the wheel, and those miles should be as engaging and entertaining an experience as possible. Now that we are going to spend more money on our cars, it is more important than ever to stick to this fundamental principle.

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