The law of supply and demand is Econ 101 and basically says that if there is low supply and high demand, prices will also be high. There is no better example of this than the rise in used car prices following the COVID-19 pandemic. The shutdowns created a global shortage of semiconductor chips, which new cars depend on.
This led to a glut in the manufacture of new vehicles and sent prices through the roof, but it also created a huge demand for used cars, which also became more expensive. All this chaos resulted in vehicles being overvalued and dealers taking in the premium profits. Now, however, the supply chain is normalizing, the pandemic is over and the economy is slowing down, so vehicle values are about to drop. Some more than others.
Vehicles that will be closed in 2023
Car reviewer and YouTuber Ben Hardy recently made a video to warn about some disturbing industry trends that will greatly affect vehicle values this year. His overall point is that too many people are paying way above MSRP on new cars, especially since dealers can still get away with it for now. Combined with the normal depreciation associated with driving a new car off the lot, consumers are figuratively flushing their money down the toilet. Overpaying for a car that was overvalued to begin with and trying to sell it a couple of years later can result in a loss of tens of thousands of dollars.
Hardy mentioned a few vehicles he thinks will lose the most value in 2023, and almost everything from Ford came up. More specifically, Hardy feels that the Ford Maverick and Ford Bronco are radically overpriced and, as the market normalizes, will lose value very quickly. With the Bronco, there is high demand and long waiting lists with consumers, so dealers are charging a premium, but as those orders catch up with customers, demand will drop and so will the value . Another to watch out for is the F-150 Raptor, which is $40,000 over MSRP, because the market for those has bottomed out.
Toyota’s TRD Pros also made the list of cars Hardy thinks will lose value. According to him, the used market for 4-Runners, Sequoias and Tundras is well below dealer inflated new prices, so anything above MSRP is money lost forever. The Honda Civic Type-R and CR-V are a couple more models that Hardy thinks you should avoid because they sell well above MSRP and value will be lost on the used market.
The main takeaway is that supply chain problems created artificially high values for both new and used cars. With things back to normal, dealers won’t be able to mark up vehicles and true depreciation will return, meaning car values are falling to realistic levels. Overpaying for something now means losing money on resale later.
More vehicles that will lose value this year
Jeep Wrangler Rubicon equipped in 20th Anniversary Blue
Ben Hardy’s formula is that MSRP profit plus depreciation equals money lost, so there are a few more vehicles to avoid. Automotive Research Group, iSeeCars.com, analyzed new car sales from February 2022 to 2023 and made a list of the most expensive models:
- Genesis GV70: 27.5% off MSRP
- Jeep Wrangler: 23.9% off MSRP
- Mercedes-Benz GLB: 22.9% off MSRP
- Porsche Taycan: 22.7% off MSRP
- Jeep Wrangler Unlimited: 21.9% off MSRP
- Cadillac CT4-V: 21.1% off MSRP
- Genesis GV80: 21.0% off MSRP
- Porsche Macan: 20.6% off MSRP
- Cadillac CT5: 20.3% off MSRP
- Lexus RX 350h: 20.3% off MSRP
The national average for all new car sales over the past year was 8.8% above MSRP, so these are significant margins. For the record, GMC/Chevrolets were the best value with the Silverado 1500, Sierra 1500 and Malibu all selling at or below average MSRP.
iSeeCars.com also did a study on the vehicle models with the worst five-year depreciation:
- BMW 7 Series – 56.9%
- Maserati Ghibli – 56.3%
- Jaguar XF – 54.0%
- Infiniti QX80 – 52.6%
- Cadillac Escalade ESV – 52.3%
- Mercedes-Benz S-Class – 51.9%
- Lincoln Navigator – 51.9%
- Audi A6 – 51.5%
- Volvo S90 – 51.4%
- Ford Expedition – 50.7%
FWIW, the Jeep Wrangler and Jeep Wrangler Unlimited top the list of vehicles with the lowest depreciation value at 7.3% and 8.7%, respectively, so dealer profits aren’t as affected by to these two
Used car prices have been falling over the past six months, reflecting a return to their real value. This is important if dealers continue to raise new vehicle prices, because it widens the value gap.
The value of all vehicles that could be accumulated in 2023
Image of a bunch of Hyundai Nexos at a Hyundai dealership
Besides the semiconductor shortage of the last few years, one of the main reasons why vehicle prices, both new and used, went crazy is because of unprecedented demand. For most of the pandemic, the Fed kept interest rates at or near 0%, which was the perfect time to get a car loan. Also, the US government was mailing checks to everyone, and it was a good time to splurge on luxury items like a new set of wheels. Now, however, inflation is bad and the Fed is raising interest rates to combat it, making this a terrible time to buy anything big. A poor economy always negatively affects sales of home goods, cars, and big tickets.
The housing market is already in chaos, and it’s entirely possible that the auto industry will hit rock bottom as well. Automakers could be looking at a brutal year if people simply can’t afford to buy a car. The other side of the law of supply and demand is that excess inventory and low demand means lower prices, resulting in every car on the road losing value. The only positive thing about this is that it would be a great time to pick up a classic car as long as you can pay cash, because you can’t finance anything.
