Normally around this time of year, automakers and car dealerships attract buyers with special offers and incentives aimed at juicing sales and clearing out inventory. But it’s been difficult to score a great — or even merely good — deal on a new car lately, and buyers shouldn't expect the market to improve much during the upcoming holidays.
The competition for new cars has been hot the past couple years thanks to production challenges related to shortages of things like paint resin, tires, wiring harnesses and seats, which have led to low inventory of new vehicles, experts say. Combine that with surging demand for vehicles and sky-high inflation, and it's no surprise new car prices have soared.
The average transaction price for a new car was $48,281 in October, $1,775 higher than the average a year ago and just shy of the record set in August, according to Kelley Blue Book. Auto loan interest rates have soared following the Federal Reserve’s rate hikes in 2022, helping lift the average monthly payment for new cars to an all-time high of $748 in October.
But if buyers can wait until 2023 — likely the tail end of the year — experts say that genuinely good deals on new cars could finally come back.
“If you're a very price-conscious consumer, it’s best to wait,” says Tyson Jominy, vice president of data and analytics at J.D. Power. “Probably in another year or so, you would expect to see better deals than you see today.”
He says there could be more discounting from dealers and more incentives from automakers by next Labor Day, which is historically one of the best times to buy a car. But the market will largely depend on inventory levels.
When will car prices drop and good deals return?
According to Jominy, J.D. Power believes there are 3.5 to 4 million consumers on the sidelines who will keep waiting until vehicle supply improves and prices are more reasonable. Denise Petruzella, a 56-year-old resident of western Massachusetts, is one of them.
“I'm not paying $60,000 for a car. It's crazy,” says Petruzella, who is hoping to upgrade from her Nissan Pathfinder to a pickup truck or a SUV.
She would like to buy soon so she can give her current car to her 16-year-old son, who is getting his driver’s license. But shopping for a new car has been extremely frustrating, what with auto loan interest rates above 6% and prices so high. She’s decided to hold off on the hunt for now, and plans to look again around President’s Day 2023, when she'll hopefully be able to find a low interest rate with a financing deal.
She may have to wait longer than that for a prayer of finding a good deal. Jominy says there are about 1.1 million units of vehicle inventory on the ground, and the number is trending up. That represents a 34-day supply of vehicles at the current selling pace, up from a low point of about 18 days in the spring. By the end of 2023, inventory could be meaningfully higher than it is now, but it’s unlikely to reach 2 million units — the level where he thinks the buying landscape would really change.
As vehicle inventory improves, buyers will finds better deals on cars from certain manufacturers, but it won’t be the case across the board, Jominy says. He notes that Toyota recently said it is still struggling with output troubles, meaning it’s unlikely there will be amazing deals for their vehicles. But it could be a different story for certain trucks and cars from domestic automakers.
How to get a good deal on a new car now
New car prices are likely to soften early next year, according to Brian Moody of Cox Automotive, the executive editor for AudoTrader.com and Kelley Blue Book. But Moody says if you know where to look, you might even be able to find a deal right now. That's because around this time of year, the remaining vehicles from the current model year need to be sold to make way for next year’s models. Dealers are keen to clear their remaining inventory, assuming they have some leftover models.
“If you're OK getting a 2022 model at the end of 2022, you're probably going to find something that's within your price range,” he says.
It also depends on the type of car you’re trying to buy, according to Moody. You can find a better value if you look for vehicles that aren’t in hot demand. For example, Buick vehicles are selling for 1% below the manufacturer suggested retail price (MSRP), while vehicles from Honda, BMW and Nissan are going for above MSRP.
“The trick is to be looking for the types of vehicles and the brands of vehicles that are not selling the best," he says. "That would be, specifically, sedans, hatchbacks and maybe even some hybrids."