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 because of high demand and tight inventory. But 2023 may finally bring some relief. 
As demand stabilizes and inventory improves, prices are expected to ease. Prices could drop up to 5% for new vehicles and 10% to 20% for used vehicles, according to a report in Novemberfrom the bank J.P. Morgan
Consumer research firm J.D. Power projects new-car prices will fall somewhere between 2% and 10% next year, according to Tyson Jominy, vice president of data and analytics at J.D. Power.
“As the inventory increases, we will expect to see prices come down for consumers, so it’s mostly good news,” he said, adding that buyers can expect to see the supply on dealer lots increase.
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.
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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.  
Rising interest rates, however, could offset the decline in vehicle prices, meaning Americans who finance their cars may not see as much, if any, relief.
“It’s tough to say how it will come out in the wash,” Jominy said. “But in general, it should be, on net, good for consumers when these prices come down.”
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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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 amid  consumer demand for affordable vehicles, according to Edmunds data. 
Factors such as the war in Ukraine, which has exacerbated supply chain interruptions, and the chip shortage will ultimately determine how much prices will decline, said Benjamin Preston, an automotive reporter at Consumer Reports.
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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, which makes 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 a car 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. 
If buyers can wait, they can expect to see lower prices next year than today, Jominy said. But shoppers don’t necessarily have to wait to get a decent price because many automakers are starting to offer incentives.
Consumer Reports advises consumers to buy a car when they need it, Preston said. 
“If you need a car now, you should get a car now,” Preston said. “You can certainly help yourself by doing a lot of research and figuring out what you want, what you need. And then sort of finding alternatives.” 
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.)


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