When Will Car Prices Drop?

When Will Car Prices Drop?
 
 
 
 

A single car has around 30,000 components. We see and replace some of the more obvious ones, like the tires and light bulbs, but there are thousands of internal parts within the engine or in mechanisms that roll the windows down that don’t need replacing very often. You wouldn’t expect a carmaker to provide the light bulbs or the tires, and it’s the same for most components within the car. What’s happening now is that manufacturers aren’t able to source all the components they need. That’s halting car production, which lowers supply. When will car prices drop? That won’t happen until supply outstrips demand.

piggy bank car

Sticker Price

At the moment, the average new car is sold for 5 percent more than the sticker price. That’s the situation due to demand outstripping supply. A vehicle with an MSRP of $45,000 will sell for $47,250. To counterbalance this, the driver’s trade-in is normally worth a little more than expected. And interest rates are lower than usual, meaning anyone borrowing money to finance their car will save a little there.

Used Cars

At the height of the global pandemic, we weren’t using our cars. The price of new cars fell to stimulate the market. When lockdown eased, we started to drive more often, and the demand for new cars increased. The pandemic was still causing issues for suppliers, so parts were not getting across to manufacturers. For that reason, the value of used vehicles increased slightly. The demand for new cars was being satisfied by the used car market.

Leasing

According to statista.com, 24 percent of new car sales in 2021 were through leases. In this type of agreement, the driver can either pay a final fee to own the car at the end of the contract period or give the vehicle back to the dealer. Those drivers have a few years to decide what to do, but those who leased in 2019 will have a decision to make in 2022. During 2019, a peak of 33 percent of sales were through leases. Those consumers will need to replace their cars or take new ones. Those pre-pandemic sales will stimulate the market if drivers hand their cars back. Will the majority hand their cars back and buy used vehicles or take on another lease? With the rise of electric cars, the new car market may pick up in 2022.

young couple at dealership

Electric and Hybrid Vehicles

Sales of EVs have jumped by 83 percent. They’re still a tiny slice of the market at just 3 percent, but 434,879 were sold in 2021. To put that into context, Europe sold 571,000 units in one quarter in 2021. Hybrid sales were also up. In 2021, Americans bought 801,550 hybrids. That’s 5 percent of the market. Again, a small number, but in 2022 those numbers are expected to double to 1.2 million hybrids and electric car sales in the US. The new CAFE standards will drive this. These Corporate Average Fuel Economy standards set fuel consumption standards that manufacturers need to adhere to.

Final Word

Although there will be additional sales in the EV market, and some owners with leases that mature in 2022 will want new vehicles, there’s no way to predict when new car prices will drop. International consultancy firm KPMG predicts that prices will fall in the fourth quarter of 2022. During 2021, US car dealers hit a record low for inventories due to the lack of availability of semiconductor chips. That’s beginning to resolve itself now, and production is picking up, so the expectations are that the market will normalize during the final quarter of 2022.

Any thoughts? Let us know your comments!

The site isn't responsible for the opinions expressed by third parties, delegating any legal responsibility to them.

 
 

Comments