Car prices are dropping, but according to experts it’ll never go back to what it once was. Find out what to expect if you’re looking for a car!

If you’ve been eyeing a new car, you’ve likely noticed that due to a lot of factors, including supply chain disruptions, chip shortages, and high used car demand, car prices have skyrocketed. But there’s finally some good news for potential car buyers: car prices are dropping!

This isn’t to say that finding a screaming deal is guaranteed, but there are signs that the market is starting to cool down. The average transaction price for a new car in the U.S. in February 2024 was $47,244. That price is down 2.2% from February 2023 and 5.4% from the peak in December 2022, according to Kelley Blue Book. Although prices are nearly 14% higher than in February 2021.

According to Pat Ryan, the founder and chief executive officer of CoPilot, the prices are never going back to the old normal. And the resaon for that is all the underlying components built into new cars, such as technology, as well as high labor costs.

Why did the car prices go up?

Here are some of the key factors for the surge in these last few years:

• Supply Chain Disruptions: the COVID-19 pandemic significantly impacted global supply chains, leading to shortages of essential car parts, particularly semiconductor chips. This limited car production, driving up prices due to simple supply and demand.
• Increased Demand for Used Cars: with new car production hampered, consumers turned to the used car market, pushing prices up in that sector as well.
• Low-Interest Rates: low-interest rates made car loans more affordable, further fueling demand despite the higher prices.

What can make the car prices drop?

While the factors mentioned above caused a significant price increase, there are indications that the market is starting to shift:

• Increased Production: automakers are gradually ramping up production as chip shortages begin to ease. This increased supply should help to alleviate price pressures.
• Rising Interest Rates: the Federal Reserve has begun raising interest rates, which will likely lead to higher car loan payments. This could dampen demand somewhat and potentially slow price increases.
• Lack of Consumer Confidence: consumer confidence has dipped due to inflation concerns, which could lead to a decrease in car buying activity.

What to expect?

While car prices are showing signs of a decrease, it’s important to maintain realistic expectations. Here’s what you can expect as a car shopper:

• Don’t expect fire-sale prices on new cars anytime soon. However, the aggressive price hikes we’ve seen may slow down or even reverse slightly;
• Dealerships may still have some leverage in negotiations, especially for in-demand models. Be prepared to do your research and shop around for the best deals;
• The auto market is complex and constantly evolving. Keep an eye on industry trends and be prepared to adjust your strategy as needed.

Tips

• Research the fair market value of the car you’re interested in using resources like Kelley Blue Book or Edmunds. This will help you determine a good starting point for negotiations.
• Don’t limit yourself to just one dealership. Get quotes from several dealerships to ensure you’re getting the best possible price.
• With new car prices still elevated, you might find a good deal on a slightly used car. Just be sure to have the car inspected by a mechanic before you buy.
• If you’re not in urgent need of a car, you might want to wait a bit longer. As production ramps up and interest rates continue to rise, prices are likely to continue to cool down.