Did you know that some new car models have already seen prices collapse by 42% this year¿ That’s what a recent Forbes report has exposed. What we’re seeing right now in the auto market is the classic narrative of an asset class that went up in price too fast, resulting in a massive bubble. However, even as work stoppages disrupt production at some car plants, dealerships still have an oversupply of vehicles, and demand is simply not there anymore. That’s why they’re cutting prices faster than at any other period in the past ten years. New cars, used cars, and electric vehicles are all facing a reckoning right now, signaling that the feared car market crash is finally starting to accelerate. Continued below the video
The unprecedented challenges caused by the pandemic, such as factory shutdowns and chip shortages, are behind us by now. Car production is up, and new car inventory has rebounded from supply chain-induced shortages, with popular models having over 90 days of supply at dealer lots. Used car prices fell by 6.6% in the previous month, and lost over 20% of their value since mid-2022. Without so many choking points interrupting manufacturing and delivery of vehicles in 2023, the conditions that supported record car price growth in the past few years are no longer in place. That means balance is finally being restored. As of August 31, the last time this type of data was updated, the average transaction price of a new vehicle had dropped by almost $2,000, to $48,165, according to Kelley Blue Book, a Cox Automotive company.
That was the largest decrease in the past decade, and analysts say this is just the beginning. Today, domestic car inventories are almost 30% higher than they were just a couple of years ago when lots only had 60 days of supply available. In fact, Cox data shows that three vehicle segments had average transaction prices below $30,000 in August – compact cars, subcompact cars, and subcompact SUVs. Meanwhile, average luxury vehicle prices fell to $64,107, declining by more than 4%, since the start of the year. These figures may seem small, but they are actually remarkable considering that some experts were expecting a 5% gain in the second half of the year. They indicate that new car prices are no longer climbing, but starting their descending journey. Continued below the Goldco ad
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The only thing preventing a full-blown crash at this moment is interest rates. They may determine how fast new vehicle prices will drop in the coming months. To truly understand the depth of this crisis, let’s look at the dire state of the U.S. electric vehicle market. A new analysis by CarGuru shared by Forbes shows that EV prices are dropping like a rock. So far in 2023, the Tesla Model S faced a 42.1% price crash, from $73,751 to $42,669. 2023 is being the most devastating year for electric cars in terms of falling prices. Cox reported that the average transaction price for a new electric vehicle is down 20% already, from $66,390 to $53,438. It’s important to remember that a year ago, demand for these cars was so high that prices hit a peak of almost $75,000.
In the coming months, you should prepare to see even more inventory at dealerships, and even deeper price cuts. As a consumer, you should stay informed with news to make clever decisions when purchasing a new car. Now, we’re still in the calm before the storm. It is time to wait. Conditions are combining to spark the biggest car market crash of our lifetime, and we can’t miss that opportunity when it finally happens.
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