Why Car Prices Are Finally Falling

TTwo years ago, David Rosenberg’s dealership lots were virtually empty; the cars would be sold as soon as they arrived. Today, Rosenberg, president of DSR Motors, which has 12 dealerships throughout New England, says he is offering great deals to get vehicles off the lots because he has so much inventory.

Rosenberg was forced to offer major price reductions for brands such as Stellantis (formerly Chrysler) and Nissan, as well as some Subaru models. “For some cars it’s a buyers’ market,” he says. “We’re discounting $25,000 – crazy numbers.”

Car prices aren’t just falling on Rosenberg lots. New vehicle prices in May fell nearly 1% from a year earlier, representing the eighth consecutive month that prices fell, according to Kelley Blue Book estimates.

A big reason dealers like Rosenberg have so much inventory compared to a year ago is related to the pandemic. As automakers suspended production during COVID-19, shipping lanes were clogged and semiconductors were in short supply. As a result, dealers had difficulty getting cars onto their lots. There were so few cars available in 2021 and 2022 that sellers could charge sky-high prices to people desperate for a vehicle. (Including me.) Consumers, flush with money from stimulus packages, competed for the limited number of cars available, driving up prices even higher.

See more information: How to negotiate with car dealers.

This continued until the end of last year, says Rosenberg. Now, however, dealers have many more cars – so many that they are incentivized to sell them if they sit idle for too long. There were 2.89 million cars available at the beginning of June, the highest number since the end of 2020 and a 55% increase from the previous year, according to vAuto Live Market View from Cox Automotive.

The relief for consumers represents a big change from last year, when prices were still rising. In May 2023, new vehicles cost 4.7% more than the previous year, according to government data. The same government data shows that new car prices fell 0.8% compared to the previous year.

It’s not all good news for car buyers. Interest rates for auto loans are about four percentage points higher than they were in April 2022, according to a recent report from the Bank of America Institute. The cost of car insurance is skyrocketing. Even if prices fall further, borrowing and insurance costs could make consumers’ monthly payments higher than they have been. A recent Bank of America/Market Landscape Insights study found that 45% of respondents said they had trouble meeting loan payments and vehicle maintenance costs.

“Even if prices are low, you may not feel as much relief as you expected,” says Kevin Roberts, director of industry insights and analysis at CarGurus.

There are some options for people who want to get a good deal. Many dealers still have 2023 models on their lots, and 2025 models are coming soon, so dealers will likely offer special promotions, Roberts says. Used car prices fell 9.3% year-over-year, according to government data.

See more information: Why are we spending so much money.

Even electric cars are becoming more affordable, thanks to increased competition, faster production and government tax credits. Research from CarGurus suggests that prices for some used electric vehicle models are 36% lower than they were a year ago.

Of course, the cost of new and used cars is still higher than it was before the pandemic. That probably won’t change anytime soon. Salaries are higher. Parts are more expensive. Today everything costs more.