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Will cars be cheaper in 2023?

Will car prices come down in 2023? Indicators suggest yes, but interest rates may slow demand

Cars sit on the lot of Stephanie Morris Nissan in Durango. A report released by JP Morgan indicates new car prices could drop by 5% and used car prices by 10% to 20% in 2023. (Jerry McBride/Durango Herald)

Cars sit on the lot of Stephanie Morris Nissan in Durango. A report released by JP Morgan indicates new car prices could drop by 5% and used car prices by 10% to 20% in 2023. (Jerry McBride/Durango Herald)

Car prices may be coming down after two years of inflated prices brought on by supply-chain issues that occurred during the pandemic.

Prices could drop up 5% for new vehicles and 10% to 20% for used vehicles in 2023, according to a report in November from J.P. Morgan. The basis for the prediction is that demand has stabilized and vehicle inventory is improving.

New vehicle inventory across the county was about 1.62 million units by the end of November 2022 which was around 740,000 more than in November 2021, according to data from Cox Automotive.

The hike in car prices was driven by a shortage of parts and a lack of vehicle inventory that caused prices to soar when manufacturers could not meet demand.

“Whenever you shut things down, whether it be our economy or economies overseas, where we’d get a lot of these parts, it just creates a ripple effect of chaos,” said Warren Gutierrez, finance manager for Stephanie Morris Nissan in Durango.

Gutierrez said the dealership is no longer struggling with inventory issue and that it has an influx of inventory, which could lead to some relief on prices.

The average price for a brand-new, non-luxury car was $44,584 in November 2022, and the average used-car price was around $27,564 in October, according to Kelley Blue Book.

Sticker prices on new cars could drop by 5% and used cars by 10% to 20% in 2023. (Jerry McBride/Durango Herald)

Sticker prices on new cars could drop by 5% and used cars by 10% to 20% in 2023. (Jerry McBride/Durango Herald)

That is still far more than the averages from before the COVID-19 pandemic in 2019. In 2019, the average cost of a new car was $36,718, according to data from the automotive information site Edmonds, while the average price of a used car was $17,500.

However, lower prices could present some issues for people who purchased a vehicle over the last two years because they are stuck making payments on a vehicle that was above market value because of inflation.

“It’s horrible for those that bought over the last few years, because they paid a premium price,” Gutierrez said.

He said that will also impact trade-in value of vehicles bought over the last few years because buyers won’t be able to trade the vehicle in for near the same price as they bought it. Gutierrez said it could be especially costly if the buyer put a large down payment on the car.

“It’s going to be interesting to see over the next couple of years if the factories step up and offer some bigger rebates,” he said.

After the pandemic started, car dealerships stopped offering rebates on new vehicles because of lack of inventory. A rebate is a reduction in cost that is refunded to the customer by the manufacturer after the purchase.

“If you buy a $40,000 vehicle at a $5,000 rebate, you’re essentially buying it at $35,000,” Gutierrez said.

Trade-in values have also impacted the dealerships, because they had to offer higher trade-in values over the last few years and now own used vehicles at above-market prices.

A report released by JP Morgan indicates new car prices could drop by 5% and used car prices by 10% to 20% in 2023. (Durango Herald file)

A report released by JP Morgan indicates new car prices could drop by 5% and used car prices by 10% to 20% in 2023. (Durango Herald file)

Gutierrez said higher interest rates could impact people’s desire to purchase a car over the next few years. As of December, the average annual percentage rate on new vehicle loans was about 5.2% and a used vehicle loan was about 9.3%. Higher rates are sure to jack up the cost of monthly payments on both new and used vehicles.

A used car purchased at the average price from October has an estimated monthly payment of around $530 with a standard 60-month loan term.

“It’s probably going to prevent people from wanting to buy a car,” Gutierrez said. “They’re going to hold on to their vehicle for as long as they possibly can until those rates go down.”

Gutierrez said the increased rates are cyclical and that they will eventually return to a more consumer-friendly level, but it will impact dealerships and car buyers for the next few years. It will impact dealerships because with fewer people wanting to buy cars profits wills decrease.

Car affordability in Australia: The state of the market in 2023

New and used cars have never been more expensive or hard to obtain. So why are Australian car prices skyrocketing, and when will it end?

12 Jan 2023, 07:10 am
Stephen Corby

Archive Whichcar 2020 03 24 113291 Money Car

Gallery 5

Not so long ago, just six years in fact, we ran a story about what a wonderful time it was to be a car fan, or a collector, or even just someone mildly interested in owning one.

Cars in Australia were, relatively speaking, cheap – indeed, measured against inflation they were a bargain – and you could have whatever you wanted, within reason, and your budget.

Today, of course, things have changed. Prices haven’t risen so much as soared, while availability is laughable – we now take for granted that we might have to wait 12 months for the vehicle we want – and this has caused used-car prices to hit previously unimaginable levels.

The main reason for these imposing problems is quite small: a global shortage of semiconductors, the tiny but rather crucial chips cars need for critical functions such as safety features, power management and displays.

Motor Features Semiconductor Shortage Chips

The global COVID-19 pandemic has done nothing to help the high demand and low supply of semiconductors – and cars in general – resulting in a litany of supply chain issues where bottlenecks are the norm, and any new cars that eventually do arrive are typically far pricier than they’ve ever been.

Back in 2016, we reported that many cars were still frozen at the price levels of 20 years prior, with the cheapest Toyota Corolla being $19,490 plus on-road costs, compared to a similar 1995 model costing more at $22,870.

That trend is clearly over: a 2023 base model Corolla will now set you back $28,130; close to a $6000 increase.

2023 Toyota Corolla ZR Hybrid Hatch Silver 2

In terms of non-volume cars that you’re less likely to be embarrassed seen driving in, the sticker on a Subaru WRX – a car that never seemed to move in price and thus just became more of a bargain over time – has also risen $6K in six years, going from $38,990 to $44,990 plus on-road costs).

The price of cars now follows the general trend of things costing more over time, with Sydney’s median house price now $1.257 million, compared to $450,000 at the end of 2002; the national average for unleaded petrol in 2022 was $1.76 per litre (87.3c in 2002); and over the last 20 years, the cost of a Big Mac has leapt from $3 to $7.15.

Despite the disturbing trend of things becoming stupidly expensive, there is a light at the end of the tunnel – even if it’s going to take around 12 months for that light to reach us. (Stupid speed of light. )

Archive Whichcar 2019 06 18 1 Car Money Copy

Michael Clarke of Cox Automotive says forward orders are easing, allowing car manufacturers to get on top of the rabid demand, which will ultimately cause new-car prices to “normalise” by the end of 2023.

“We are starting to see signs of it starting to shift,» Clarke told ABC News.

“We’re seeing customer sentiment starting to reduce, and we’re seeing the market supply of vehicles starting to increase in that first half [of 2023].”

That’s not the only promising news: used-car prices, which have also been at an all-time high, are also likely to start dropping soon, albeit in a gentle fashion.

2023 Toyota GR Corolla Hatch Circuit Heavy Metal 031

Economic forecaster and manager of prestige vehicle trading auction house Pickles, Steve Allen, says falling prices are the first substantial sign of deflation in the economy.

“So there is an excitement about that, and it certainly makes our job easier, because these cars become more attractive for people to buy,” he said.

“It’s feeling like things are slowly returning to normal.”

Fast facts

  • Not all cars are more expensive. A Suzuki Swift cost $15,990 in 2005 — adjusted for inflation, that’s $23,014. A 2022 base model Swift will set you back $22,990.
  • The Consumer Price Index in Australia has risen by 51.8 per cent since 2002.
  • The average full-time adult weekly wage has risen from $697 in 2002 to $1,769 today.
  • The 1987 Apple Macintosh SE cost $5000 with a 20MB hard drive. Today, a 24-inch iMac with 512GB of storage will cost you half as much.

Budget 2023: Cars to get cheaper

“A simplified tax structure with fewer tax rates helps in reducing compliance burden and improving tax administration,” said Finance Minister Nirmala Sitharaman.

Written by Express Drives Desk
February 1, 2023 20:36 IST

Can the Budget spur entry-level demand in the auto sector?

Replacement demand and making EVs affordable through lowering the battery costs are seen as potential catalysts that could trigger demand at the entry level.

Finance Minister Nirmala Sitharaman has announced a host of measures which makes all automobiles including electric vehicles more affordable. She proposed at the Union Budget 2023 will reduce duties on cars making them a lot more accessible for the common mass.

“A simplified tax structure with fewer tax rates helps in reducing compliance burden and improving tax administration. I propose to reduce the number of basic customs duty rates on goods, other than textiles and agriculture, from 21 to 13. As a result, there are minor changes in the basic customs duties, cesses and surcharges on some items including toys, bicycles, automobiles and naphtha,” said the Finance Minister during her speech.

This move will help bolster the automobile sales numbers, even though 2022 saw one of the highest sales figures in the Indian automobile market by crossing the 3.85 million sales mark despite the industry facing a shortage of semiconductor chips.

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Shashank Srivastava, Senior Executive Officer, Marketing & Sales, Maruti Suzuki India Limited, said, “The growth of the automobile industry has a high correlation with overall growth of the economy. Therefore, any measure which helps the overall growth of economy will benefit the automobile industry. The Union Budget for the year entails a lot of steps which will benefit the automobile industry. I am confident that the seven pointers- ‘Saptarishi’ for the Amrit Kaal announced by Hon’ble Finance Minister, Smt. Nirmala Seetharaman will give an impetus to the economy. With reduction in income tax, the disposable income of individuals across all categories is set to increase. The announcements regarding capex, will further have a positive impact on both the demand as well as supply side of economy. While in the short term, this will help generate demand, in the medium and long term it will help generate capacity when output gap decreases due to increased consumption. Investment in areas such as railways, increased agricultural credit target, policies on scrappage and encouragement of biofuel will also lead to a positive impact. However, we still need to watch out for factors such as inflation, bank interest rates, liquidity, and geo-political tensions, which may impact growth.”

No such luck for fully imported cars and electric vehicles, which are both completely built units (CBU) and semi-knocked down (SKD) units. The government has decided to increase the customs duties of CBUs worth less than $40,000 from 60 percent to 70 percent. This includes vehicles with less than 3000cc petrol engine and below 2,500cc diesel powertrain.

As per the budget document, customs duty on electric vehicles in CBU form, other than with cost, insurance and freight (CIF) value of more than $40,000, has also been raised to 70 percent from 60 percent. The budget also stated that customs duty on vehicles, including EVs, in SKD form will rise to 35 per cent from 30 per cent earlier.

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Rajat Mahajan, Partner, Deloitte India explains, “The custom duty on imported vehicles with invoice value less than $40,000 has increased from 66 perent (incl cess) to 70 percent for CBUs and 33 percent (incl cess) to 35 percent for SKD. This can lead to increase in the end customer price within the premium and luxury segment. The ex-showroom price after loading top GST bracket for cars and accounting for margins, can go up by 1-2 percent if the OEM passes this in entirety. Similar impact will be seen in the imported (SKD and CBU) EVs. Global MNCs who are banking on buoyant consumer demand in the premium and luxury space will be effected. However, to ride on this revived demand most OEMs may decide to absorb this cost in the short run.

Currently, CBUs with CIF worth more than $40,000 or with engine capacity of more than 3,000cc in the petrol category and more than 2,500cc for diesel attract 100 percent customs duty.

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