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 Cox Auto Group (opens in new tab), 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.
Cox Auto 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.
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(Image credit: Cox Automotive)
In December 2017, Cox 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.
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. Kelley Blue Book (opens in new tab) (KBB) 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, as consumers stay resilient in the face of continued inflation.
Lower-priced cars are the most scarce. Sub-$10K models have the lowest inventories nationwide, as 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 (opens in new tab) showed used vehicle prices were down 1.9% in the past month and down 11.6% over the past year.
CNN (opens in new tab) reports that auto wholesaler Mannheim registered a 4% jump in its average wholesale used car price in the middle of February, which could potentially trickle down to individual car buyers. Experts point to dealers hoarding used cars for when Americans receive their tax refunds, and they expect prices to resume falling slightly after this spring buying rush.
So 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.
- 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, your credit union, as well as a dealer. And if you don’t qualify for the best rates from the dealer or the manufacturer, ask about the full range of financing options before settling for the first offer.
- Get comfortable with ordering online. The pandemic turbocharged online commerce, and car buying along with it. Major carmakers like Volvo are shifting to offer direct online buying, matching Tesla's longtime practice. This can offer real savings by cutting out 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 the MSRP of your vehicle, which could help you pull the trigger on a vehicle that's immune from fluctuating gas prices.
- Figure out what are your must-have features and where are you flexible, so you're able to keep an open mind about potential model deals that still have your essentials.
- Even if you hate price haggling, consider non face-to-face options like email, text message, and live chats to unlock better deals.
- Look for two- to three-year-old used vehicles — they’ve already lost the lion’s share of their initial value.
- Avoid leases that sharply restrict mileage (often to as little as 10,000 miles per year) and drive up the price of late-model used cars.
- Consider vehicles with more miles that are newer than an off-lease option, such as used rental cars. These cars are carefully maintained and usually carry lower prices.
- Check out all-digital used-car sites such as Carvana (opens in new tab), Shift (opens in new tab) and Vroom (opens in new tab), which perform full vehicle inspections, offer a seven-day return period, and claim lower prices because they don’t have dealer showrooms.
- For price savings over the more popular full-size models, consider smaller cars with higher fuel economy as well as less marquee electric vehicles such as the Chevrolet Bolt and Volt and Nissan Leaf.
- Check your target vehicle's reliability and repair history 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.
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