Auto Sales Fell 8% in 2022 — Will That Mean Lower Prices in 2023?
Car buyers got hit hard in 2022 between record-high sticker prices and rising interest rates, leading to average monthly payments on new vehicles setting an all-time high over the summer. The good news is, prices have eased since then and could fall even further in 2023 amid a decline in overall sales.
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Full-year new-vehicle sales in 2022 are forecast to finish at around 13.9 million units, Cox Automotive reported this week, citing data from Kelley Blue Book. That represents a decline of 8% from 2021. It’s also the lowest level since 2011, when total sales reached 12.7 million following the Great Recession. Sales in 2022 are even forecast to finish below the total in 2020, when the COVID-19 pandemic shut down much of the U.S. economy.
The main drag on auto sales over the past few months has been decreasing demand, caused in part by the Federal Reserve’s aggressive interest rate hikes. Rates have risen so high that auto-loan costs reached levels not seen in more than 20 years, Cox Automotive reported. This has pushed some potential buyers out of the market completely.
“This December, there were fewer giant red bows than dealers would have liked,” Cox Automotive senior economist Charles Chesbrough said in a statement. “Given the large improvement in supply levels, it seems likely that rising interest rates are now constraining demand in the retail auto market. With record-high prices and elevated loan rates, the pool of potential new-vehicle buyers is shrinking.”
The slowdown in sales, combined with a rise in inventory, has led to a softening in prices. As Cars.com noted, analysts at J.P. Morgan estimate that used car prices will fall by 10% to 20% in 2023, while new car prices are expected to dip 2.5% to 5%.
Lessened Demand Not the Only Factor For Dipping Car Prices
Beyond the impact of slowing demand, prices have also been affected by an easing of the global microchip shortage and improvements in new car production, according to Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions.
“The worst of the microchip shortage should be behind the automotive industry,” Fiorani wrote in an email to Cars.com. “With an increased focus on finding chips for cars and trucks, the shortage started easing, but the slowdown in demand of electronics has helped even more.”
Price declines have even hit numerous popular models. The average used price across all model years of the Chevrolet Silverado 1500 fell nearly 11% from November 2021 to November 2022, while prices on the Dodge Ram 1500 and Ford Explorer are down about 9% and 10%, respectively. Among the models that have held steady on prices are Toyota sedans.
Older cars are especially susceptible to price declines, according to Pat Ryan, CEO of car shopping app Copilot.
“We’ve already seen prices start to fall on older cars and they’ll continue to ease in 2023,” Ryan told Forbes. “Part of the decline is due to economic uncertainty, but it’s primarily consumer resistance to those prices.”
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However, prices of later-model cars are expected to remain high in 2023 due to large-scale production cuts during the COVID-19 pandemic and limited inventory on car lots.
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