The US auto market has shifted into a lower gear in just a matter of months. After average car prices hit record highs as recently as last summer, some analysts are now predicting that an oversupply of vehicles will lead to a price war that will send prices plummeting.
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A recent UBS report estimates that global car production will outpace sales by 6% this year, leaving a surplus of 5 million vehicles that will require price cuts to sell the lots, Yahoo Finance reported. While those price cuts won’t happen until the second half of 2023, automakers are gearing up for a price war, and some EV makers are already cutting prices.
“Given bullish production schedules, we see a high risk of overproduction and, as a result, increasing price pressure,” UBS said in a note to clients. “The price war has already started to unfold in the electric vehicle space and we expect it to spread to the combustion engine segment [during the second half of 2023].”
Family carmakers are most likely to suffer price cuts, analysts say, while luxury carmakers are expected to hold up better.
Electric vehicle makers may be very successful because of a combination of rising energy costs and high prices that put many consumers out of reach, Yahoo Finance noted. In January, Elon Musk’s Tesla cut the price of its cars by up to £8,000 in the UK. Some of its cheaper models are now around the same price range as mass-market brands like Kia.
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Ford Motor Company and Lucid are among the other automakers that have reacted to Tesla’s cuts by slashing the prices of their own electric vehicles, according to the Proactive Investors website.
Meanwhile, there is already evidence that car prices across all segments have softened. The latest data from Cox Automotive, released on Friday, April 7, showed that wholesale prices for used vehicles in March fell 2.4% from a year earlier, although they rose 1 .5% compared to the previous month.
A March 23 report from Kelley Blue Book found that new vehicle prices fell for three straight months and that “is starting to look like a sustained trend.” Still, prices remain “historically high.”
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This article originally appeared on GOBankingRates.com: New car market: Prices about to plummet due to oversupply
