Reasonably priced new cars are like unicorns in the US these days as automakers seem determined to implement an all-out luxury market. Perhaps now is the time to consider the used car market, where prices are steadily falling from pandemic highs. Read on to understand the problems facing new car buyers and the opportunity in the used car market.
New cars are more expensive than ever
According to a new report from Cox Auto Group (opens in a new tab), the US new car market is becoming a luxury market, where new vehicles are only available to the wealthiest buyers. The dramatic shift can be linked to supply disruptions, new technology, tight inventories, higher interest rates and automakers increasingly targeting wealthy buyers.
Cox Auto measured the change in the new car market between December 2017 and December 2022. The study focused on more affordable vehicles priced under $25,000 along with vehicles priced above $60,000, which generally it is out of the price range of the average American buyer.
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(Image credit: Cox Automotive)
In December 2017, Cox measured 36 models with MSRPs under $25,000. At the time, cars under $25,000 accounted for 13% of total new vehicle sales, with 204,593 sold. As of December 2022, only 10 models with MSRPs below $25,000 remained on the market, with 43,557 sold, a share of just under 4%.
Meanwhile, luxury brands took more market share and non-luxury brands increasingly moved into the luxury category. In December 2017, the share of vehicles priced over $60,000 was less than 8%, with 61 models and sales of 122,864. In December 2022, at least 25% of new car sales were over $60,000, with 90 unique models and total sales of 323,368.
Buyers looking for the famous “affordable” car may soon have to shop exclusively in the used car market.
Used cars continue to slide
As the new car market causes heartburn, the used car market offers buyers some welcome relief after the pandemic-related price hikes. Kelley Blue Book (opens in a new tab) (KBB) reports that the average price of used cars sold across the market fell to $26,510 in January, down $633 from December 2022. This marked the fourth consecutive month of average price declines across the market. The explanation boils down to more new cars constantly entering the market, fueling the supply of used cars as consumers remain resilient in the face of continued inflation.
Low priced cars are the rarest. Models under $10,000 have the lowest inventories nationwide, compared to the highest inventories for used cars at $35,000 or more. The latest Consumer Price Index report from the Bureau of Labor Statistics (opens in a new tab) showed that used vehicle prices fell 1.9% last month and 11.6% over the past year.
CNN (opens in a new tab) reports that auto wholesaler Mannheim posted a 4% increase in its average wholesale used car price in mid-February, which could trickle down to individual car buyers. Dealers are hoarding used cars for when Americans get their tax refunds, experts say, and they expect prices to resume falling slightly after this spring’s buying rush.
So if you’re in the market for a used vehicle, waiting to buy until May could likely unlock even better used car deals.
How to get the best car deal
We have several tips for finding the best deal, whether you’re buying new or used.
Buying a new car:
- Consider low-priced cars with high resale value. The rapid depreciation of luxury models usually cannot be overcome with favorable financing and free maintenance.
- Find your car financing with your local bank, credit union and dealer. And if you don’t qualify for the best dealer or manufacturer rates, ask about the full range of financing options before settling on the first offer.
- Get comfortable with online ordering. The pandemic boosted online shopping and car buying along with it. Major automakers such as Volvo are shifting to offer direct online purchase, matching Tesla’s long-standing practice. This can offer real savings by eliminating the car dealership and its fees.
- Consider an electric vehicle. The Inflation Reduction Act expanded the Electric Vehicle Tax Credit and Electric Vehicle Home Charger Credit to $7,500 off your vehicle’s MSRP, which could help you pull the trigger on a vehicle that is immune to fluctuating gas prices.
- Find out what your must-have features are and where you’re flexible, so you can keep an open mind about possible deals on models that still have your essentials.
- Even if you hate haggling over prices, consider face-to-face options like email, text, and live chat to unlock better deals.
Buying a used car:
- Look for used vehicles that are two or three years old – they have already lost the lion’s share of their original value.
- Avoid leases that drastically restrict mileage (often up to 10,000 miles per year) and increase the price of late-generation used cars.
- Consider vehicles with higher miles that are newer than a rental option, such as used rental cars. These cars are carefully maintained and usually have lower prices.
- Check out all-digital used car sites like Carvana (opens in a new tab)Exchange (opens in a new tab) and Vroom (opens in a new tab)that do full vehicle inspections, offer a seven-day return period and claim lower prices because they don’t have dealer showrooms.
- For price savings compared to more popular full-size models, consider smaller cars with higher fuel economy, as well as less prominent EVs like the Chevrolet Bolt and Volt and Nissan Leaf.
- Check the reliability and repair history of your target vehicle at Consumer Reports (opens in a new tab). Automated merchant (opens in a new tab) and Kelley Blue Book maintain monthly Top 10 lists of used cars and SUVs.
