Now is not always the time when it comes to major purchases like houses and personal vehicles. Since 2020, the automotive industry has faced numerous challenges that drove car prices up, leaving many people in wait for better market conditions. However, one cannot postpone the car purchase indefinitely. So, is 2023 the best time to buy a car?
What’s happening to the automotive market now?
Both new and used car prices went up in recent years. Why is that happening? To understand that, we should get back to the early stages of the Covid-19 pandemic that rocked the world in 2020.
Massive lockdown restrictions led to factory closures. International supply chains were disrupted because of the travel restrictions as well. Meanwhile, the economies of most countries steeply degraded, leading to additional pressure on manufacturers.
The recovery takes longer than expected, considering the fact that China, which dominates global microchip production, has lifted zero-Covid policies only in January 2023. Moreover, Russia’s ongoing invasion of Ukraine aggravates the semiconductor supply issues. Therefore, even now the chip shortage hasn’t been fully eliminated.
At the same time, most modern cars have complex advanced in-built technologies that require hundreds and thousands of microchips. According to AutoForecast Solutions estimations, over 13 million vehicles worldwide were cut from production between early 2021 and August 2022 due to the chip shortage.
Other car models were sold without certain features or hardware updates. In such cases, buyers had to return to the dealerships sometime after the purchase to get their cars properly upgraded.
What about the car prices?
Analyzing car prices from a historic perspective may answer the question “Should I buy a car now?” for many prospective buyers.
Facing the harsh truth, one must acknowledge that the car-buying market in 2023 is still being impacted by the COVID-19 pandemic. Besides, Russia’s war in Ukraine has deeply influenced global economies, causing a general rise in consumer prices.
Due to the still ongoing microchip shortages, there are fewer cars on the market. Therefore, customers across the globe have had to pay higher prices for their vehicles for a while now.
For instance, the average new car price hit a record high of $48,681 in November 2022, according to Kelley Blue Book. Before that, between December 2020 and December 2021, average new car prices rose from $41,335 to $47,077. For comparison, before the pandemic, the average new vehicle was sold for $37,876.
As for the used cars, their prices rose from $22,718 in December 2020 to $30,445 in December 2021 — showing an increase of 34%.
Although, at the end of 2022, used car prices began to fall, reaching below $29,000, the cost of the new cars remained too expensive.
Starting this spring, car prices finally started to show a slight decline. Thus, the average transaction price of a new vehicle in the US in March 2023 fell to $48,008, a month-over-month decrease of 1.1% ($550). At the same time, March 2023 transaction prices remained up 3.8% ($1,784) compared to year-ago levels.
Retail used-vehicle prices now average $26,510. It is still 35% above where its average price before the pandemic which was $20,425.
So, is now a good time to buy a car?
Most experts agree that car prices aren’t likely to fall to pre-pandemic levels anytime soon. Besides, auto loans are not cheap now, as the Fed has long started increasing the interest rates to combat inflation.
As of April, the average interest rate for auto loans on new cars is 4.07%. Meanwhile, the average interest rate on loans for used cars is 8.62%. Despite some decrease compared to 2022, these are still not the best financing options.
In addition, credit scores significantly impact the interest rates and loan options available to a specific borrower. If your score is 661+, you can find reasonable loan terms at most lenders. If you score between 501 to 660, the car credit will cost more. Besides, not all auto lenders will work with you.
Finally, with a score below 501, you would be forced to look for lenders that specialize in bad credit loans. Or else, you should be able to make a larger down payment to get more favourable loan terms. Many buy-here, pay-here dealerships offer in-house financing for bad credit borrowers. However, these loans are often too expensive to maintain.
Even taking into account the rising prices, used vehicles still remain pretty affordable compared to their new counterparts. Their prices have been steadily falling since mid-2022. In addition, it’s likely that resale values will stay elevated for a long time, taking years to get back to normal. Therefore, it may make no sense to wait for the return of pre-pandemic prices for used cars, if you need a vehicle in the nearest future and can afford it.
However, whether it’s a good time to buy a new car is a completely different question. For most households, the current cost of a new car is still too high. Besides, the new car prices haven’t been showing a downward trend for as long as the used car cost has. The conclusion is that you should likely avoid buying a new car now if you don’t need it urgently.
What if I need to buy a car now?
In case you require a new vehicle this year, you should consider the general trends which will help you get the best deal possible in 2023.
Firstly, some of the best car deals have been traditionally available during three-day weekend holidays, at the end of each quarter and at year-end sales events. So, you might postpone your car purchase to later in the year to get a lower price.
Take your time to shop around for a full month to track the best deals. Closer to the end of the month, many salespeople may be trying to meet monthly quotas and are more likely to offer better deals.
However, if you need to buy a car right away, at least, try to make your purchase earlier in the week. As many trusted car-buying websites acknowledge, this is when buyers can typically get better prices.
For those car owners who decided they want a change of their vehicles, selling their old cars to finance a new one might be the best option. Considering the high prices, they can get the best money for the car’s value.
The rest can be financed with the help of a loan. Comparison sites like myAutoloan and Autopay show multiple loan offers and help customers find the best car loan rate available. Credit unions can be the best option among the many auto loan lenders for increased savings and lower rates.
The microchip shortage that started with the pandemic elevated both new and used car prices, making many vehicles unaffordable to clients amidst the living cost crisis. Despite some recent declines, car costs are not even close to the pre-pandemic levels. However, they might get more affordable closer to the end of the year, especially considering the traditional sales events that happen during this period. Therefore, prospective car buyers should avoid making rush purchase decisions, if they are able to postpone buying a car.