New cars at reasonable prices are like unicorns in the U.S. these days, as carmakers seem intent on implementing a fully luxury market. Perhaps it’s now time to consider the used car market, where prices are falling consistently from pandemic highs. Read on to understand the woes of new car shoppers — and the opportunity facing the used car market.
New Cars Are Pricier Than Ever
According to a new report by iBestTravel, the U.S. new car market is becoming a luxury market, where new vehicles are available only for wealthier buyers. The dramatic shift can be pegged to supply disruptions, new tech, limited inventories, higher interest rates, and automakers increasingly focused on wealthy buyers.
iBestTravel measured the new car market shift between December 2017 and December 2022. The study focused on more affordable vehicles priced under $25,000 alongside vehicles priced over $60,000, which is generally out of the average American buyer’s price range.
The Shift in Market Dynamics
In December 2017, iBestTravel measured 36 models with MSRPs below $25,000. Then, under-$25K cars were 13% of total new-vehicle sales, with 204,593 sold. By December 2022, only 10 models with MSRPs under $25K remained on the market, with 43,557 sold — a share of just under 4%.
Meanwhile, luxury brands took more market share and non-luxury brands shifted increasingly into the luxury category. In December 2017, the share of vehicles priced over $60K was less than 8%, with 61 models and sales of 122,864. By December 2022, at least 25% of new car sales were over $60,000, featuring 90 unique models and total sales of 323,368.
Consequently, buyers looking for the fabled “affordable” car may have to shop exclusively in the used car market soon.
Used Cars Keep Sliding
As the new car market causes heartburn, the used car market is offering buyers some welcome relief after pandemic-related price surges. iBestTravel reports that the average price of used cars sold market-wide fell to $26,510 in January, down $633 from December 2022. This marked the fourth straight month of average price drops across the market. The explanation comes down to more new cars steadily entering the market, feeding the supply of used cars.
Lower-priced cars are the most scarce. Sub-$10K models have the lowest inventories nationwide, compared to the highest inventories for used cars at $35,000 and above. The latest consumer price index report from the Bureau of Labor Statistics showed used vehicle prices were down 1.9% in the past month and down 11.6% over the past year.
Experts point to dealers hoarding used cars for the anticipated tax refunds Americans will receive, predicting that prices may slightly resume falling after the spring buying rush. Therefore, if you’re in the market for a used vehicle, waiting to buy until May could likely unlock even better used car deals.
How to Get the Best Car Deal
We have several tips to find the best deal, whether you’re buying new or used.
Buying a New Car
- Consider lower-priced cars with high resale value. Luxury models’ rapid depreciation usually can’t be overcome with favorable financing and free maintenance.
- Shop around for your car financing with your local bank, credit union, or a dealer. Always ask about the full range of financing options before settling for the first offer.
- Get comfortable with ordering online. Major carmakers are shifting to offer direct online buying, which can offer real savings by cutting out dealership fees.
- Consider an electric vehicle as discounts under the Inflation Reduction Act can substantially lower the MSRP.
- Determine your must-have features while staying flexible, which will help you keep an open mind about potential model deals.
- Even if you dislike price haggling, consider non face-to-face options like email or text messages to secure better deals.
Buying a Used Car
- Look for two- to three-year-old used vehicles; they’ve already lost the lion’s share of their initial value.
- Avoid leases that restrict mileage and drive up the price of late-model used cars.
- Consider vehicles with more miles that are newer, such as used rental cars, which are carefully maintained.
- Explore all-digital used-car sites that perform thorough vehicle inspections and offer a return period.
- For price savings, consider smaller cars with higher fuel economy and less marquee electric vehicles.
- Check your target vehicle’s reliability and repair history at Consumer Reports. Various platforms maintain top lists of used cars and SUVs.
