Reasonably priced new cars are like unicorns in the U.S. these days, as automakers seem intent on cornering the luxury market entirely. Perhaps now is the time to look at the used car market, where prices have fallen consistently since the peaks of the pandemic. Read on to understand the woes of new car buyers – and the opportunities ahead in the used car market.
New cars are more expensive than ever
According to a new report by Cox Auto Group (opens in new tab), the US new car market is turning into a luxury car market where new vehicles are only available to wealthier buyers. The dramatic shift can be tied to supply disruptions, new technology, limited inventory, higher interest rates and automakers increasingly focusing on wealthy buyers.
Cox Auto measures the change in the new car market between December 2017 and December 2022. The study focuses on more affordable vehicles priced under $25,000 along with vehicles priced above $60,000, which is typically outside the price range of the average American shopper.
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In December 2017, Cox measured 36 models with an MSRP under $25,000. Then, cars under $25K accounted for 13% of total new vehicle sales, with 204,593 sold. By December 2022, only 10 models with an MSRP under $25K remained on the market, with 43,557 sold – a share of just under 4%.
Meanwhile, luxury brands have taken a larger market share and non-luxury brands have increasingly moved into the luxury category. In December 2017, the share of vehicles priced over $60K was under 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.
Buyers looking for the legendary “affordable” car may soon have to shop exclusively on the used car market.
Used cars continue to slide
As the new-car market sours, the used-car market is offering buyers some relief after price spikes related to the pandemic. Kelly’s Blue Book (opens in new tab) (KBB) reports that the market-wide average price of used cars sold fell to $26,510 in January, down $633 from December 2022. This marked the fourth consecutive month of market average price declines. The explanation boils down to more new cars steadily entering the market, fueling the supply of used cars as consumers remain resilient in the face of continued inflation.
Cars with lower prices are the most scarce. Models under $10K have the lowest inventory nationwide, compared to the highest inventory for used cars $35,000 and up. The latest Consumer Price Index report from the Bureau of Labor Statistics (opens in new tab) showed that used car prices were down 1.9% in the past month and 11.6% over the past year.
CNN (opens in new tab) reports that the Mannheim car wholesaler saw a 4% jump in its average used car wholesale price in mid-February, which could potentially trickle down to individual car buyers. Experts point to dealers stocking up on used cars when Americans get their tax refunds and expect prices to resume a slight slide after this spring buying boom.
So if you’re in the market for a used vehicle, waiting to buy until May can likely unlock even better used car deals. And if you’re looking for car insurance, try our new comparison tool — in partnership with Bankrate — to help you find the cheapest deals.
How to get the best car deal
We’ve got some tips to help you find the best deal, whether you’re buying new or used.
Buying a new car:
- Consider lower priced cars with high resale value. The rapid depreciation of luxury models usually cannot be overcome with favorable financing and free maintenance.
- Shop around for your car finance at your local bank, your credit union, and the dealer. And if you don’t qualify for the best prices from the dealer or manufacturer, ask about the full range of financing options before you settle for the first offer.
- Take it easy with online ordering. The pandemic has boosted online shopping and car buying along with it. Major automakers like Volvo are shifting to offering direct online purchases, matching Tesla’s long-standing practice. This can offer real savings by reducing the car dealership and their fees.
- Consider an electric vehicle. The Inflation Reduction Act expanded the Electric Vehicle Tax Credit and EV Home Charger Credit to $7,500 off your vehicle’s MSRP, which can help you pull the trigger on a vehicle that’s immune to fluctuating gas prices .
- Find out what your must-have features are and where you’re flexible so you’re able to stay open to potential deals on models that still have the essentials.
- Even if you hate haggling over price, consider non-face-to-face options like email, text, and live chats to unlock better deals.
Buying a used car:
- Look for used vehicles that are two to three years old – they have already lost the lion’s share of their original value.
- Avoid leases that sharply limit mileage (often to 10,000 miles per year) and raise the price of late-model used cars.
- Consider vehicles with more miles that are newer than the off-lease option, such as used rental cars. These cars are carefully maintained and usually have lower prices.
- Explore all-digital used car sites like Carvana (opens in new tab)Shift (opens in new tab) and Vroom (opens in new tab)who carry out full vehicle inspections, offer seven-day returns and claim lower prices because they don’t have dealership showrooms.
- For cost savings compared to more popular full-size models, consider smaller cars with better fuel economy, as well as electric vehicles with fewer brands like the Chevrolet Bolt and Volt and the Nissan Leaf.
- Check the reliability and repair history of your target vehicle at Consumer Reports (opens in new tab). Autotrader (opens in new tab) and Kelley Blue Book maintain top 10 monthly lists of used cars and SUVs.