Car buying is not what it used to be, as shoppers find bare lots and inflated prices. The auto market is still short on supply and high on demand.
Beyond the chip shortage, there are shortages in tires, wiring harnesses, and plastic components. The new government regulations are not helpful, either.
One dealer I spoke to has new cars in the lot, but they are not sellable because they’re missing inner wheel houses or microchips for safety features, or the center screen.
No relief until 2024
In conversations with many automakers, it has become increasingly clear to me that they don’t see any relief of these supply chain issues until 2024. This is the result of offshoring components to China and other countries. The result is higher vehicle prices and limited supplies.
According to a J.D. Power and LMC Automotive survey released Wednesday, supplies are still scarce and prices are still high. The industry is still constrained by insufficient inventory to meet robust consumer demand.
The result of rising inflation has caused another issue that we’ve seen before, higher repossessions as drivers can’t afford to keep the cars they overpaid for when the shortage started.
Why? Increased insurance, higher gas, electric prices and maintenance costs have led to difficulties for many people in making car payments. In many cases, pandemic stimulus helped defaulters buy cars, but when the checks stopped and inflation surged, people could not keep up with the payments especially now that the Fed is raising interest rates.
Although used car prices are only a bit less in price than during the peak pricing last year, the new car market is even uglier. At the end of last month, Kelley Blue Book reported, “New car buyers paid an average of $48,182 in August.” It was the highest figure KBB had ever recorded. The auto market is still short on supply and still strong demand. So, prices are not likely to go back to incentives and great finance rates in the near future.
While supply is still limited and the supply chain is still struggling, demand is falling off because cash-strapped consumers are putting off buying any vehicles or buying out their lease balance, and keeping what they have now.
Armed with all this information, it begs the question: Is the car bubble about to burst?
If you were considering selling a car, now is the time to pull the trigger. The used car bubble is absolutely about to burst, if not by the end of this year, by the beginning of 2023. This is a rare time that used cars are selling at higher prices than new ones, with the average price of a used vehicle now $33,341. That’s lower than the March 2022 peak, but only by $172.
If you’re in the market for a used car, I’d hold off on buying one for a few more months if you can. Prices will come down as interest rates rise. Used car buyers are paying an average of $10,046 more thanks to the auto market bubble.
However, the new car market is even uglier as dealers are showing cars to consumers that they can’t even deliver. We won’t see relief in the new car market until 2024 with some dealers increasing the sticker price by 10%, 20% or 100%! Not all dealers are being greedy, though.
On the flip side, you won't find any discounts for new cars, either. Federal data showed new car prices soared 30% over the last few years.
So what does this mean for you? Be prepared to pay top dollar because finding exactly what you're looking for will be challenging. The new car market continues to see prices skyrocket.
What’s coming next?
The latest California Air Research Board (CARB) bill requires 35% of cars sold in California to be electric, plug-in hybrid or hydrogen by 2026, and the requirement ramps up 8% a year after that. I'm sure it will have no impact on the cost of living in the "Golden State" because those three types of cars are super cheap. However, green energy enthusiasts need to hold onto their hats, because all three of these costs are about to increase dramatically.
Actually, what it will do is drive up used car prices, as Californians buy cars from the other 49 states and import them to avoid buying those expensive alternate-fuel new cars. California voted decisively for this bill; it is the will of the people.
This ban may be adopted by at least 12 additional states fairly soon, while five additional states are considering it. It is going to get progressively worse, and cars will get more costly every year. Buckle up and be patient, the bubble has NOT burst yet. More shortages equals higher costs
There is so much more to discuss on this, put your comments below and let’s start the conversation.
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Lauren Fix, The Car Coach, is a nationally recognized automotive expert, media guest, journalist, author, keynote speaker and television host. A trusted car expert, Lauren provides an insider’s perspective on a wide range of automotive topics and safety issues for both the auto industry and consumers. Her analysis is honest and straightforward.
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