Two years of supply chain constraints had car inventory low and prices high. Here are the reasons now is the time to buy in Five for Friday.

Simone Del Rosario Business Correspondent

EV price cuts to tax refunds: 5 reasons you can buy a car again

Feb 03, 2023

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Emma Stoltzfus (Editor), Brent Jabbour (Producer)

The market for new and used cars has been difficult over the last two years. Pandemic-induced supply chain issues emptied dealership lots and pushed prices through the roof. It looks like the situation could be turning back in favor of the consumer. Here are the reasons now is finally the time to buy in this week’s Five for Friday.

#5: Electric vehicle price wars

In January, Tesla cut the price of some of its flagship cars by as much as 20% in a single day. A few weeks later, Ford made a similar move, dropping the price of its Mustang Mach-E. This will make some models eligible for the U.S. government’s $7,500 EV tax credit. It also opens the door for the great EV price wars that will likely bring down prices industrywide, not to mention make it more affordable to get into a used model too.

#4. Falling used car prices

Used car prices “likely peaked” in 2022, according to JPMorgan. The steady supply of new vehicles and waning demand can only push prices down even further. After jumping more than 37% in 2021, used car prices finally fell 8.8% last year. JPMorgan sees used cars losing another 10% to 20% in 2023. But today’s average price of $27,143 is still considerably higher than the $17,500 average in July 2019.

#3. Struggling industry giants

Carvana and CarMax have been feeling the pain of falling used car prices. Stock prices for the used car giants were wiped out over the last 12 months and the weak demand isn’t helping. This could mean good news for anyone in the market for a used vehicle as the companies are forced to sell inventory for less than they paid. Maybe Carvana shouldn’t have been paying more for 7-year-old cars than they were worth brand new.

#2. Tax refund season

In the coming weeks and months Americans will have their tax refund checks burning a hole in their pockets and dealers know it. If you are planning to buy, act fast because the first few months of the year could see a slight rise in price due to those checks coming in. But dealers will no doubt offer some incentives to get you in the door so they can offload some of last year’s leftover inventory. Twitter-famous CarDealershipGuy says there’s a big dip coming after that, so there’s plenty of opportunity to buy this year.

#1. You can pay under sticker again

Part of buying a new car is the thrill of negotiation, and it’s finally back. Buyers had less sway at the dealership during the surge. In fact, in January 2022, 80% of buyers were paying over sticker price for new cars. But by the end of 2022, buyers were paying $300 less than MSRP on average. It’s still not nearly as good as the $2,600 under sticker buyers were able to get in 2019.

Tags: Car loans, Electric vehicles, Ford, JPMorgan, Supply chain, Tesla, Used cars

SIMONE DEL ROSARIO

IF YOU’VE BEEN IN NEED OF A CAR THE PAST TWO YEARS, YOU KNOW THE MARKET’S BEEN ABSOLUTELY NUTS. PANDEMIC-INDUCED SUPPLY CHAIN ISSUES EMPTIED LOTS PUSHING PRICES THROUGH THE ROOF. BUT WE’VE GOT THE REASONS NOW IS FINALLY THE TIME TO BUY IN THIS WEEK’S FIVE FOR FRIDAY.

IN JANUARY, TESLA CUT PRICES OF ITS NEW CARS BY AS MUCH AS 20% OVERNIGHT. JUST A FEW WEEKS LATER, FORD FOLLOWED SUIT, SLASHING THE PRICE OF ITS MUSTANG MACH E. THE CUTS MAKE SOME MODELS ELIGIBLE FOR THAT $7,500 EV TAX CREDIT, BUT THE WHOLE THING MAKES WAY FOR THE GREAT E-V PRICE WARS, WHICH’LL MAKE IT EASIER TO GET INTO A USED MODEL TOO.

WITH A STEADIER SUPPLY AND DECLINING DEMAND, PRICES CAN ONLY GO DOWN (WE HOPE). AFTER JUMPING MORE THAN 37% IN 2021, USED CAR PRICES HAD A BIT OF A HANGOVER AND FINALLY FELL NEARLY 9% LAST YEAR. JP MORGAN SAYS PRICES “LIKELY PEAKED” IN 2022, WITH MORE ROOM TO COME DOWN. BUT IT’S ALL RELATIVE, THE $27,000 AVERAGE PRICE IS STILL 10 GS ABOVE WHAT IT WAS 3 AND A HALF YEARS AGO.

CARVANA AND CARMAX ARE FEELING THOSE FALLING PRICES TOO. STOCK PRICES FOR THE USED CAR GIANTS WIPED OUT LAST YEAR AND THE INDUSTRY’S STILL FACING WEAK DEMAND. THIS SAD STATE OF AFFAIRS COULD BE A BOON FOR YOU AS THEY’RE FORCED TO UNLOAD INVENTORY AT LESS THAN THEY PAID. MAYBE CARVANA SHOULDN’T HAVE BEEN PAYING MORE FOR 7 YEAR OLD CARS THAN THEY WERE WORTH NEW.

PRETTY SOON YOU’RE GONNA HAVE THAT TAX REFUND CHECK BURNING A HOLE IN YOUR POCKET AND DEALERS KNOW IT. IF YOU WANNA BUY – ACT FAST ‘CAUSE THE FIRST FEW MONTHS OF THE YEAR COULD SEE A SLIGHT RISE IN PRICE DUE TO THOSE CHECKS COMING IN. BUT, THEY’LL HIT YA WITH SOME INCENTIVES TO GET YOU IN THE DOOR SO DEALERS CAN OFFLOAD SOME OF LAST YEAR’S INVENTORY. TWITTER-FAMOUS CARDEALERSHIPGUY SAYS A BIG DIP IS COMING AFTER THAT.

PART OF BUYING A NEW CAR IS THE THRILL OF NEGOTIATION, AND THAT’S BACK BABY. BUYERS HAD WAY LESS SWAY AT THE DEALERSHIP DURING THE SURGE. IN JANUARY OF LAST YEAR, 80% OF BUYERS WERE PAYING OVER STICKER PRICE FOR NEW CARS. BUT BY THE END OF 2022, THEY WERE PAYING $300 LESS THAN MSRP. BUT AGAIN, DON’T GET OUT YOUR WACKY INFLATABLE TUBE GUY YET, IT’S STILL A FAR CRY FROM THE 2600 UNDER STICKER PRICE BUYERS WERE GETTING BACK IN 2019.

MORAL OF THE STORY: IT AIN’T AS GOOD AS IT ONCE WAS, BUT IT’S BETTER THAN IT’S BEEN THE LAST TWO YEARS. THAT’S FIVE FOR FRIDAY, I’M SIMONE DEL ROSARIO. IT’S JUST BUSINESS.