There are always good reasons why most people don’t buy a new car. Such a purchase can be put off for years, as the high monthly payments will delay the accumulation of savings and investments to be used later. After two full years of shortages, empty lots of new vehicles, and high prices, you might expect 2023 to be the year dealerships get generous. But it seems that it will not be so.
“We anticipate a challenging global auto market in the whole of 2023, driven by high interest rates, energy prices and financing rates, as affordability surged,” wrote analysts Mizuho Americas, led by Vijay Rakesh, in a recent report. Cox Automotive analyst Michelle Krebs explains that vehicle inventories have been pressured, but Toyota and Honda still have a low number of new cars for sale. One reason for the high prices is that “automakers are building more expensive vehicles because the new-car buyer tends to be wealthier,” she says.
“While the inventory situation has improved modestly in the quarter, supply remains well below the level at which consumer demand for new vehicles can be met,” said Thomas King, president of the data and analytics division. by J.D. Power. “New vehicle transaction prices will increase, albeit at a slower rate than earlier this year. The average price in December marked a record of 46,382 dollars in the United States, which represents an increase of 2.5% compared to the previous year, ”he adds.
The Cox Automotive/Moody’s Analytics Vehicle Affordability Index hit a new low in November, with an average of 43.3 weeks of income needed to pay for the purchase of a new light vehicle. Higher interest rates are also driving some lower-rated borrowers out of the market, according to Krebs.
From a broader perspective, Burt Hurvich, a vice president at Mount & Nadler, says that because of the improvement in quality and durability “buying a new car, even from high-end brands” is a bad idea for anyone. He suggests purchasing a used car from an affiliated dealership directly with the manufacturer. He cites examples in which he or members of his family bought vehicles that were two years old with little running in, saving “more than 50% of the original price of the new car.”
Taking this idea further, Hurvich emphasizes the importance of human relations if maintenance and repair costs are to be kept low. “Most likely you’ll go to the dealership to get inputs for newer vehicles, because increasing complexity makes it harder for individual mechanics to afford diagnostic equipment,” he says. “To keep repair costs down, the key is to develop a good relationship with the dealer’s service people…Then there will be more for you than anyone else,” she says.
A year to let go
Krebs makes it clear that in today’s auto market, we may have a hard time finding a late-model used car at an attractive price. It all boils down to the need to wait to buy the next used car, if possible, because the car market may take another year to settle. It can cost much less to maintain or repair the new car for another couple of years.
“If you have to buy a car, you have to broaden your analysis,” says Kebs, who recommends being flexible when it comes to brands and vehicles. According to buyers, those who had insisted on SUVs have returned to look at other options, in part, due to higher gasoline prices. That has been tricky as Ford, General Motors and Chrysler have moved away from SUV models in favor of pickup trucks in the United States. This all boils down to another tough year for car buyers. “You can wait? Does your old car run well? Do you really need to make this big financial move in 2023? Waiting another year can help you save a larger down payment for your next car, making it easier to shop in what may be a much-improved market in 2024.”
