An overproduction of vehicles could lead to slashed prices in an attempt to sell excess cars, prompting a major shift in the vehicle market. Such a shift could bring a price drop that buyers welcome, particularly after the past few years of record-high prices.
Swiss investment bank UBS Global released a report in April predicting that vehicle overproduction may be an issue in the latter half of 2023. The report estimates that 85.8 million vehicles will be produced in 2023. However, the report forecasts the sale of only 81 million vehicles. If those predictions are correct, approximately 4.1 million new vehicles will be produced but won’t be in demand, meaning dealerships will need to find a way to sell those vehicles.
In response, it’s likely that dealerships will drop vehicle prices. According to UBS, family cars will most likely experience the largest price cuts, while the price of luxury vehicles is unlikely to decrease much.
If vehicles are overproduced, then 2023 will be the first time that vehicle supply exceeds demand since the pandemic began. Production bottlenecks and supply chain issues, particularly surrounding a shortage of microchips, slowed vehicle production, which drove up the cost of both new and used vehicles.
In 2022, new vehicle prices hit an all-time high. According to the Kelley Blue Book, average new vehicle prices reached $48,182 in July 2022. Interest rates simultaneously rose, making paying for those high-cost vehicles even more challenging. According to the Cox Automotive/Moody’s Analytics Vehicle Affordability index, to buy an average new vehicle in July 2022, you would need 42.2 weeks of median income, and average monthly payments for a new vehicle reached $733 per month. Those record-high prices made new vehicle purchases unobtainable for many Americans.
According to Kelley Blue Book, the new car market is improving for buyers. Manufacturers increasingly have more inventory, and in July 2023, incentives averaged $2,100, indicating that carmakers are working to attract buyers. In previous years, dealerships barely discounted any vehicles at all, but the higher rates on auto loans have slowed vehicle purchases, so manufacturers and dealers have reintroduced discounts to drive sales.
While declining new car prices are good news for many buyers, vehicles priced under $20,000 are still hard to find. However, that means that dealerships are eager to accept trade-in vehicles with values under $20,000. Shoppers looking for a new vehicle who have a trade-in could potentially get greater value for their old car.
With car prices poised to drop, you might be tempted to finally buy the new car that you’ve been saving for – but should you? Kelley Blue Book reports that new vehicle prices are still 27% higher than they were at the onset of the pandemic. Prices haven’t dropped much yet, but you’re more likely to see price reductions toward the end of the year as dealerships work to move last year’s models off of the lot to make room for 2024 models.
With auto loan interest rates remaining high, think carefully about how you will finance your new car. Saving up a large down payment can help to reduce your monthly payments and will ultimately cut down the amount that you will pay in interest on your new vehicle.
Shopping around for an auto loan can help you to save money, too. You may find lower interest rates at credit unions or smaller banks than you’ll find from larger, national lenders. Private lenders will often offer you lower interest rates than you’ll receive with an auto loan that you get through the car dealership, so take some time to get pre-qualified and shop around for the best loan option.
Declining vehicle prices mean good news for car insurance, too. Your vehicle’s purchase price impacts the amount that you will need to pay to insure it, with more affordable vehicles costing less to insure than more expensive models. Other factors can impact your car insurance, too. For example, many insurance lenders will offer you discounts if a vehicle is equipped with certain safety devices, like anti-theft devices and lane assist technology. If you’re interested in these types of discounts, call your insurance company ahead of time to verify the types of devices that they offer discounts for, since these will vary from company to company.
The long-awaited declining new car prices may be tempting, but make sure that you’re ready to buy a new car. Waiting until the end of the year may mean that you can take advantage of lower vehicle prices, especially if you’re not set on buying a specific model that’s in high demand. Being patient for at least a few more months can also give you time to save up more money for a down payment, reducing the amount that you’ll have to borrow and minimizing what you’ll pay in interest, too.
Paige Cerulli Paige Cerulli is a freelance content writer and journalist who specializes in personal finance topics. She graduated from Westfield State University and brings more than a decade of professional writing experience to the ConsumerCoverage team. Paige’s work has appeared in outlets including USA Today, Business Insider, and more.