Quick Facts About the Car Buying and Selling Marketplace
A month ago, analysts didn’t know what car prices would look like today. A major auto workers’ strike threatened to send prices higher after months of declines, and there were signals that used car prices could begin to rise, too.
Today, the news is much better. The United Auto Workers (UAW) strike is likely over (though union members are still voting on whether to accept contact offers, they’re back at work). Used car prices fell last month. And, though the average new car price rose ever-so-slightly, it was likely a short-term blip in a steady decline.
Car shoppers can take their time and make a careful decision this month.
We’ll walk you through what to expect while buying or selling a new or used car or trading one in. Many car shoppers are in both markets simultaneously, with a vehicle to swap. They’re likely to find balanced offers on their trade-in this month. Read on to find out more.
What New Car Shoppers Can Expect
What triggered the increase? Kelley Blue Book analysts cite two things. Neither one is likely to be a long-term problem. One is the strike. As it dragged into a second month, it caused Detroit’s Big Three automakers to pull back slightly on incentives — those discounts that drive final sale prices down.
But the strike only affected the Big Three. Barely. UAW leadership ran this strike in a clever way — striking just a handful of plants at all three automakers and adding more as talks stretched out without an agreement. That meant, though the union was technically on strike against all three automakers, workers continued building most cars. Dealers never really saw a major shortage that would drive prices up.
The strike is likely over now. Union members are still voting whether or not to accept contract offers, but they appear to have won historic concessions from their employers and are already back at work.
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The other factor was Tesla. The electric vehicle (EV) builder had been slashing prices all year and posted disappointing third-quarter sales results after selling a lot of cars for less profit than expected. Tesla pulled back some discounts, and it’s a big enough player now that that move alone raised the average sale price for a luxury car in America.
With the strike over and Tesla unlikely to raise prices again so soon, we expect the average sale price to resume its slow descent this month. New cars continue to grow more affordable as a proportion of American’s income.
That should make this a reasonable month to get a good deal on a new car.
Impact of Higher Interest Rates
Meanwhile, the Federal Reserve has kept interest rates high and signaled that it may not bring them down any time soon. Higher interest rates may prevent car buyers from purchasing a new or used vehicle. The Fed has signaled that it plans to keep rates high for longer than most analysts expected. But, for now, it’s not raising them further.
However, lenders are doing so. Jonathan Smoke, chief economist for Kelley Blue Book’s parent company, Cox Automotive, said, “Since July, auto loan rates have moved up by about 50 basis points.”
Car loans grew easier to get in October, but they’re still coming at historically high interest rates.
What Used Car Shoppers Can Expect
The used car market has gotten weird. Supply and demand govern prices, but the used car supply is thin, and prices are falling anyway. The average used car sold for $26,533 in October. That’s 0.6% lower than September’s price and 3% lower than last October.
Prices may even fall further in the near future. The prices dealers pay for used cars at auction fell last month. Wholesale price drops become retail price drops, typically after six to eight weeks.
Though prices are good, the selection is not.
“The number of used vehicles available for purchase has remained higher than the low point seen in early April,” said Chris Frey, senior manager of Economic and Industry Insights at Cox Automotive. “However, the overall used-vehicle inventory volume is still considered to be limited and has been stuck in the 2.2-2.3 million range for the past four months.”
That’s about a 47-day supply of used cars to sell. An old industry rule of thumb tells dealers to keep about 60 days on hand.
That inventory figure shifts depending on what kind of car you’re considering. The cheapest cars remain the hardest to find. Dealers had just a 32-day supply of used vehicles priced under $10,000 at the end of October. They had 58 days’ worth of cars over $35,000.
Dealerships from some brands also have deeper supplies than others. Honda, Mazda, and Toyota were the non-luxury brands with the lowest inventory of used vehicles through September. Honda had 39 days’ supply, while Mazda and Toyota both had 40 days’ supply. Most other mainstream brands in both luxury and non-luxury categories had used-vehicle days’ supply under 50.
So you’re not likely to overpay for a used car this month. But you’ll have a harder time finding one that meets your needs.
Lower Supply of Cars Likely Here for Good
A worldwide shortage of microchips helped drive car prices higher for much of the last two years. With the chip shortage essentially over, some automakers and dealer groups plan to keep the supply of cars low, allowing them to charge more for vehicles. The days of dealer stockpiles and hefty discounts may never fully return. Pre-pandemic, Americans routinely bought 16 million to 17 million new cars per year. In 2021, we bought just over 15 million. Last year, shoppers purchased close to 13.7 million new vehicles. In 2023, Cox Automotive predicts Americans will buy 15 million new cars.
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Automakers Are Building More Expensive Cars
Though short-term trends are pushing new car prices down, automakers are focusing efforts on building more premium cars. The era of the inexpensive car is disappearing.
A recent analysis finds that sales of cars priced at $25,000 or less have fallen by 78% in just five years. Five years ago, automakers offered 36 new models in that price range. This year, that number is just 10. Meanwhile, those priced at $60,000 or higher have grown by 163% during the same period.
Smoke, the Cox Automotive economist, explains the recent Federal Reserve interest rate hikes keep some shoppers from buying cars. “This trend induces automakers to focus on profitable products for consumers who can afford to buy, which keeps less affluent consumers out of the new-vehicle market altogether and limits what is available and possible in the used market for years to come,” Smoke cautions.
Older, Less Expensive Cars Harder To Find
If you hope to find an older vehicle and your budget is less than $15,000, these cars remain in short supply. More would-be new car shoppers started buying up the available used vehicles, drawing down the inventory.
Plus, Americans are holding onto their cars longer than ever. The average vehicle on American roads is now 12.5 years old. Automakers also produced fewer cars for several years after the 2008 recession. That leaves fewer higher-mileage, older used vehicles available to sell.
The most accessible used cars are priced between $15,000 and $30,000. Cars priced under $15,000 remain challenging to find.
How To Buy a Car Right Now
If you want a new or used vehicle, be prepared for sticker shock. For new cars, prices remain about 21% higher than during the early days of the pandemic. But take stock that your next car will likely last longer and help you drive safer than ever with all the technological advances and offerings.
RELATED: Buying Older, Used Cars in 2023
Vehicle quality studies repeatedly show that today’s new cars suffer fewer problems than those from just a few years earlier. That means buyers of higher-priced used cars will likely see the vehicle driving on the road even longer. The same goes for those buying new ones.
With most automakers now building such durable cars, they compete by adding more high-tech features. Features like adaptive cruise control and Apple CarPlay are now more common than ever on entry-level vehicles. Read on to see our tips on buying a car below.
How to Leverage Incentives to Buy a New Car
Car incentives made up 4.9% of the average deal in October. They were about 2% of the average sale price a year ago. They’re trending in the right direction for car shoppers at last. To take advantage of incentives, read about our monthly best car deals to find dealer or manufacturer incentives, including cash back and lower interest rates for financing your next vehicle.
RELATED: How to Buy a New Car in 10 Steps
Selling a Car Right Now
PRO TIP: If selling a car, consider selling it peer-to-peer using Kelley Blue Book’s Private Seller Exchange marketplace. It’s a low-cost method that helps consumers earn more for their car than selling to a dealership.
Trading In a Car Now
Falling used car prices mean a little less for your trade-in. But the ongoing shortage of used cars will be with us for years. You’ll still likely see respectable offers for your used car this month.
Searching for a decent price for your trade-in is still a good idea by shopping it around. Each dealership tries to keep a balance of vehicles on its lot. Sometimes, the one you want to buy from doesn’t need your trade-in desperately, but a competitor does.
Looking Ahead
According to the Cox Automotive/Moody’s Analytics Vehicle Affordability Index, new vehicle affordability improved slightly month over month and year over year. “In October, strong income growth and smaller financed amounts helped the consumer overcome negative vehicle market dynamics,” said Smoke, the chief economist at Cox Automotive.
The possible government shutdown and lingering effects of the UAW strike make it harder to predict where car prices will go. However, a bit of good news about easing inflation could provide car buyers with some relief if the Federal Reserve decides to lower rates, which could impact car loan interest rates in the near future.
RELATED: 10 Best Used Car Deals
Tips for Buying a Vehicle Right Now
If you must shop right now, we recommend a few strategies to help you find the right new or used car that fits your budget.
- Expand your search. Widen your search to a broader geographic area.
- Stay patient. Call dealerships early and often to see what’s coming off the trucks for those harder-to-find vehicles. Leave a refundable deposit if you want first dibs.
- Buy a less expensive model. With higher car loan interest rates, consider buying a cheaper vehicle model instead of a more expensive one in the lineup you’re considering.
- Understand the timing. Be prepared to shop for several weeks, and know it involves calling or visiting several dealerships as you look for the right fit.
- Don’t jump. Shop around your trade-in as aggressively as you seek out the right car. Don’t accept the first offer. You could sell yourself short.
- Weigh your options. Don’t just look for a car; search for the best interest rates from banks or credit unions. Then, weigh all your options, including financing incentives and deals at the dealership, if that’s where you buy your next vehicle. Also, you may find the price differences of some newer model used vehicles are almost the same as new cars. Just keep all your options open during your search.
- Don’t pay dealer markups. If you see a markup, sometimes called a market adjustment, on your final invoice, ask that it be removed or shop at another dealership.
- Question all add-ons. If your sales summary includes entries like “window tint” or “fabric protection” and other add-ons you didn’t request, ask for those line items to be removed from your invoice. Many dealers tack on these extras to make quick profits.
It may make sense to keep your existing car for another year if you can. If you must buy, be prepared to take excellent care of your next car to keep it running for a long time.
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This article has been updated since it was initially published.
