When Will Car Prices Drop?

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Between 2021 and 2022, car prices reached an all-time high because of factors related to the COVID-19 pandemic. Fortunately, 2023 is the year that prices are finally dropping.

Based on recent industry data, average transaction prices are below MSRP and manufacturer incentives are rising, which is great news for buyers.

The car market conditions have finally started improving, and money expert Clark Howard predicts the conditions will continue to improve gradually each month throughout 2023.

“What’s happening now is large numbers of vehicles are being discounted at the dealers. Before, the dealers were adding on junk fee after junk fee. Now, they’re having to discount like the old days,” says Clark. “Manufacturers are having to have manufacturer and dealer incentives to fund some of that discounting.” 

In this article, I’ll closely examine the current used and new car markets as well as indicators about when car prices will go down.

This article was last updated in August 2023. I update it every six months with the latest industry data and Clark’s predictions.

New and Used Car Prices in 2023

Several things led to the pricing problems of the last two years. Clark cites factory closures early in the pandemic and the ongoing spread of COVID that affected workers and slowed assembly lines. And then there’s the computer chip shortage. He says the result has been record-high prices for both new and used cars as the automakers discovered that the shortage could make them more money.

However, as we head into the second half of 2023, Clark says that used cars are starting to come down in price. It’s not a straight line, but there’s a decline.

“The industry’s been on an ugly roller coaster ride. Beautiful for them, ugly for you and me. But I’ve got good news: The roller coaster is now rolling downhill in your and my direction,” says Clark. “We were in a period for a long time where dealers were marking way up above MSRP and now the average vehicle is being discounted.”

Below, you’ll find more information on when prices are expected to drop for both used and new vehicles.

When Will Used Car Prices Go Down?

In normal years, buying a used car is a great way to save money compared to buying a new car. Throughout the COVID pandemic, this advice hasn’t always held true as the market conditions brought the average prices of both used and new cars to record highs. 

Now, the conditions of the used vehicle market are starting to improve. According to recent industry data, wholesale used car prices are dropping, which is leading to improved market conditions for buyers.

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“You go by dealer lots now, and except for Honda and Toyota dealers, there’s inventory piling up both now on the new vehicle side and the used vehicle side. Used vehicle prices are going down!”

Clark expects used car prices to continue gradually easing throughout 2023.

Recently, auto wholesaler Manheim released new data revealing the used vehicle value index through mid-July 2023. In the graph, you can see prices continuing to drop from record highs. However, we still have a long way to go before the vehicle market completely stabilizes.

Manheim Used Vehicle Value Index showing a decline in used vehicle prices through July 2023
Source: Manheim

One major issue with the used vehicle market has been a low supply of more affordable models. Car dealers have been overstocked with relatively expensive used cars that are optioned out. However, most used car shoppers aren’t looking for high-priced, top-tier models. 

In the past, Clark has predicted that the market would gradually improve throughout 2023, and now we’re finally starting to see some lower prices. While this decline will continue gradually month to month, it’ll likely still be a while before we see the used vehicle market return to pre-pandemic prices. However, despite the recovering inventory, conditions are better now than they have been in the past couple of years as a whole.

“But the other shoe has not dropped yet, and it’s going to! I can see it in my Clark crystal ball. Sometimes that crystal ball is really cloudy. This time, it’s clear as can be,” predicts Clark. “The manufacturers ultimately are going to have to serve the market with what the market is demanding. And the market is demanding lower-cost vehicles.”

Clark goes on to say that you’re going see more and more affordable vehicles (and more affordable versions of vehicles) on dealer lots as the months go on.

When Will New Car Prices Go Down?

Unlike the used car market, the inventory of new cars has risen to its highest level in two years. However, most of the improved inventory still consists of higher-end, optioned-out models. While the improving inventory on average is leading to lower prices in the new car market, it’s still up from before the pandemic.

“Manufacturers had started sending the dealers only higher-end vehicles with all kinds of options and higher-end stuff on them to drive up the average price of a vehicle, and so the average price of a new vehicle has been averaging somewhere around $48,000 more or less,” says Clark. “At the same time, the number of vehicles unsold in the dealer manufacturer pipeline is now somewhere around two million vehicles!”

Cox Automotive recently put out a list of what brands are in major overstock right now. Ram, Dodge and Chrysler have double the ideal supply of vehicles. Lincoln, Buick, Infiniti and Jeep are almost double what would be considered to be an ideal supply while Ford, MINI, Audi and Genesis are also significantly oversupplied.

As you can see, more affordable brands including Honda, Kia and Toyota are still struggling with inventory below the ideal supply. You’ll be less likely to see these brands on the lots for a while.

For this reason, it’s no surprise that the average transaction price on a new car was about 27% higher in June 2023 compared to June 2020. Still, according to recent industry data from Kelley Blue Book, the average new car price saw the smallest increase from June 2023 to July 2023 that the industry had seen in a decade, and average transaction prices are below MSRP.

As new car inventory continues to build back up across the board, new car prices should continue to drop. Plus, you may be able to strike a deal with a desperate dealership as manufacturer incentives increase.

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“The new vehicle market is rationalizing and normalizing, but it’s a process,” says Clark. “It’s a trend line. It’s not where it’s going to be.”

Clark goes on to say that the prices of new vehicles are really going to start getting better in the second half of 2023. As the months go on, he expects that you’ll see more and more affordable vehicles on the lots. He says that the same trend is true for electric vehicles. “Electric vehicles that are reasonably priced are selling like mad. Used electric vehicles are a steal! They cost nothing to run, and as used vehicles, they’re not holding value for the older generation of electric.”

Clark’s Top Tips on Buying a New or Used Car Right Now

If you’re currently shopping for a new or used vehicle, be sure to take the time to comparison shop to avoid overpaying. While it may take a little longer to shop for a car, the payoff could be the savings of thousands of dollars.

Here are Clark Howard’s top five tips on buying a car in the current market:

  1. Don’t buy the optioned-out car. A lot of dealerships are finally building up their inventory, but many cars you’ll find on the lots are higher-priced models fully loaded with additional features. Of course, you’ll still be expected to pay for those features even if there is no cheaper model available. Instead of buying the higher-priced vehicle out of convenience, wait a little longer, shop around, or consider ordering the exact car you’re looking for to avoid paying more for features you don’t need.
  2. Widen your search radius. Instead of buying the optioned-out car that’s at your nearest dealership, look for the specific make and model that you want even if it’s far away. Clark says you can save thousands of dollars by shopping within a 500-mile radius of where you live. His advice: “Fly somewhere near where that vehicle is, buy it, and bring it back!”
  3. When it is time to buy, shop online. Clark says that when you do go to buy, buy your vehicle online not at the dealership. You’ll have a better selection from a wider radius, and it’ll be easier to find the model and features you’re shopping for at the right price.
  4. Join a credit union. Clark warns that getting your financing through a dealer will cost you thousands more than financing elsewhere. You’ll find much cheaper financing on a new or used vehicle at a credit union than what you’re going to get from a bank or a car dealer.
  5. Be patient. If you have to have a new vehicle as soon as possible, follow the tips above. However, the longer you hold off on buying a new or used car, the better market conditions will be. Prices and inventory are gradually improving, and the market has drastically improved compared to 2020-2021. However, you’ll likely continue to see better pricing and selections (as well as more incentives) closer to the end of 2023.

Final Thoughts

Right now is still not a great time to buy a car, but the conditions are finally beginning to improve. Prices should continue to trend downward gradually each month throughout 2023.

“We’re getting there, but we’re not quite there yet,” says Clark. “I can tell you that the conditions are dramatically improved. And as I promised back in my beginning-of-the-year predictions, I said the back half of 2023 is when we were going to see significantly better prices on vehicles, and that is absolutely going to play out.”

Clark goes on to say that if you have a working vehicle and you can stall on replacing it, be on buyer’s strike until the automakers and the dealers wise up.

If you do have to buy a vehicle right away, Clark says that shopping the country for a model you want instead of just local is key to saving money. He says when you widen your search for a particular make and model, and you’re willing to go outside the local market, the difference can potentially save you thousands of dollars.

The longer you can wait this year to buy a car, the better. But if you do need to buy a vehicle right away, be sure to read Clark’s take on whether you should buy a new or used car in the current market.

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